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Report of the North Carolina Utilities Commission, orders and decisions issued from ...

Report of the North Carolina Utilities Commission, orders and decisions issued from ...

NINETY- SEVENTH REPORT
OF THE
NORTH CAROLINA
UTILITIES COMMISSION
ORDERS AND DECISIONS
ISSUED FROM
JANUARY 1, 2007 THROUGH DECEMBER 31, 2007
NINETY- SEVENTH REPORT
of the
NORTH CAROLINA UTILITIES COMMISSION
ORDERS AND DECISIONS
Issued from
January 1, 2007, through December 31, 2007
Edward S. Finley, Jr., Chairman
Robert V. Owens, Jr., Commissioner
Sam J. Ervin, IV, Commissioner
Lorinzo L. Joyner, Commissioner
James Y. Kerr, II, Commissioner
Howard N. Lee, Commissioner
William T. Culpepper, III, Commissioner
North Carolina Utilities Commission
Office of the Chief Clerk
Ms. Renné Vance
4325 Mail Service Center
Raleigh, North Carolina 27699- 4325
The Statistical and Analytical Report of the North Carolina Utilities Commission is printed separately from the volume of Orders and Decisions and will be available from the Office of the Chief Clerk of the North Carolina Utilities Commission upon order.
LETTER OF TRANSMITTAL
December 31, 2007
The Governor of North Carolina
Raleigh, North Carolina
Sir:
Pursuant to the provisions of Section 62- 17( b) of the General Statutes of North Carolina, providing for the annual publication of the final decisions of the Utilities Commission on and after January 1, 2007, we hereby present for your consideration the report of the Commission's significant decisions for the 12- month period beginning January 1, 2007, and ending December 31, 2007.
The additional report provided under G. S. 62- 17( a), comprising the statistical and analytical report of the Commission, is printed separately from this volume and will be transmitted immediately upon completion of printing.
Respectfully submitted,
NORTH CAROLINA UTILITIES COMMISSION
Edward S. Finley, Jr., Chairman
Robert V. Owens, Jr., Commissioner
Sam J. Ervin, IV, Commissioner
Lorinzo L. Joyner, Commissioner
James Y. Kerr, II, Commissioner
Howard N. Lee, Commissioner
William T. Culpepper, III, Commissioner
Renné Vance, Chief Clerk
TABLE OF CONTENTS
TABLE OF ORDERS AND DECISIONS PRINTED.................................................................... i
GENERAL ORDERS..................................................................................................................... 1
GENERAL ORDERS -- TELECOMMUNICATIONS............................................................. 1
P- 100, SUB 110 ( 12/ 13/ 2007)............................................................................................. 1
P- 100, SUB 110 ( 12/ 14/ 2007)............................................................................................. 6
P- 100, SUB 133f ( 09/ 05/ 2007)........................................................................................... 7
ELECTRIC....................................................................................................................... ........... 13
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES........................................................ 13
E- 2, SUB 903 ( 09/ 25/ 2007).............................................................................................. 13
E- 2, SUB 903 ( 09/ 26/ 2007).............................................................................................. 36
E- 22, SUB 444 ( 12/ 20/ 2007)............................................................................................ 37
ELECTRIC -- ELECTRIC GENERATION CERTIFICATE................................................ 52
E- 7, SUB 790 ( 03/ 21/ 2007) ............................................................................................. 52
ELECTRIC -- FILINGS DUE PER ORDER OR RULE....................................................... 85
E- 7, SUB 751 ( 02/ 06/ 2007).............................................................................................. 85
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 ( 12/ 20/ 2007).............. 101
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 ( 12/ 21/ 2007).............. 175
ELECTRIC -- RATE SCHEDULES/ RIDERS/ SERVICE RULES..................................... 177
E- 7, SUB 825 ( 06/ 21/ 2007)............................................................................................ 177
NATURAL GAS ....................................................................................................................... 194
NATURAL GAS -- ADJUSTMENT OF RATES/ CHARGES............................................ 194
G- 9, SUB 528 ( 08/ 01/ 2007)............................................................................................ 194
G- 9, SUB 528 ( 08/ 15/ 2007)............................................................................................ 220
NATURAL GAS -- CONTRACTS/ AGREEMENTS.......................................................... 221
G- 53, SUB 0; E- 65, SUB 0 ( 12/ 20/ 2007)....................................................................... 221
G- 55, SUB 0 ( 12/ 14/ 2007).............................................................................................. 224
NATURAL GAS -- FILINGS DUE PER ORDER OR RULE............................................ 225
G- 5, SUB 300 ( 05/ 22/ 2007)............................................................................................ 225
NATURAL GAS -- MISCELLANEOUS............................................................................ 227
G- 5, SUB 488 ( 10/ 19/ 2007)............................................................................................ 227
G- 40, SUB 66 ( 04/ 19/ 2007)............................................................................................ 235
G- 54, SUB 0 ( 12/ 14/ 2007).............................................................................................. 241
NATURAL GAS -- RATE INCREASE............................................................................... 243
G- 5, SUB 481 ( 05/ 21/ 2007)............................................................................................ 243
G- 39, SUB 10 ( 08/ 17/ 2007)............................................................................................ 247
NATURAL GAS -- REPORTS............................................................................................ 254
G- 9, SUB 542 ( 11/ 19/ 2007)............................................................................................ 254
G- 41, SUB 23 ( 12/ 27/ 2007)............................................................................................ 266 TABLE OF CONTENTS
TELECOMMUNICATIONS...................................................................................................... 272
TELECOMMUNICATIONS -- MISCELLANEOUS.......................................................... 272
P- 19, SUB 277 ( 10/ 26/ 2007).......................................................................................... 272
P- 21, SUB 71; P- 35, SUB 107; P- 61, SUB 95 ( 12/ 20/ 2007)......................................... 274
P- 35, SUB 96 ( 04/ 25/ 2007)............................................................................................ 376
P- 55, SUB 1013 ( 03/ 14/ 2007)........................................................................................ 381
P- 75, SUB 63; P- 76, SUB 53; P- 60, SUB 73 ( 05/ 09/ 2007) .......................................... 398
P- 1262, SUB 2 ( 11/ 26/ 2007).......................................................................................... 407
WATER AND SEWER.............................................................................................................. 416
WATER AND SEWER -- COMPLAINT............................................................................ 416
W- 1143, SUB 8 ( 11/ 28/ 2007)......................................................................................... 416
WATER AND SEWER -- RATE INCREASE.................................................................... 434
W- 354, SUB 297 ( 07/ 05/ 2007)....................................................................................... 434
W- 1236, SUB 2 ( 03/ 21/ 2007)......................................................................................... 460
WATER AND SEWER -- SALE/ TRANSFER.................................................................... 487
W- 218, SUB 245; W- 1101, SUB 3 ( 08/ 20/ 2007)........................................................... 487
RESALE OF WATER AND SEWER........................................................................................ 505
RESALE OF WATER AND SEWER -- SHOW CAUSE................................................... 505
WR- 174, SUB 3; WR- 309, SUB 2 ( 03/ 20/ 2007)........................................................... 505
INDEX OF ORDERS PRINTED............................................................................................... 510
ORDERS AND DECISIONS LISTED...................................................................................... 513
2007 ANNUAL REPORT OF ORDERS AND DECISIONS
OF THE
NORTH CAROLINA UTILITIES COMMISSION
TABLE OF ORDERS AND DECISIONS PRINTED
NOTE: For Printed General Orders, see Index on Page 510
PAGE
Aqua North Carolina, Inc.
W- 218, SUB 245; W- 1101, SUB 3 – Recommended Order Granting Transfer,
Granting Rate Increase, and Requiring Customer Notice ( 08/ 20/ 2007)....................... 487
Barnardsville Telephone Company
P- 75, SUB 63; P- 76, SUB 53; P- 60, SUB 73 – Order Approving Price
Regulation Plan ( 05/ 09/ 2007)....................................................................................... 398
BellSouth Telecommunications, Inc.
P- 55, SUB 1013 – Order Ruling on AT& T’s Request for Reductions
in Free Directory Assistance Allowances ( 03/ 14/ 2007)............................................... 381
Cardinal Pipeline Company, LLC
G- 39, SUB 10– Order Decreasing Rates ( 08/ 17/ 2007)...................................................... 247
Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc.
E- 2, SUB 903 – Order Approving Fuel Charge Adjustment ( 09/ 25/ 2007).......................... 13
E- 2, SUB 903 – Errata Order ( 09/ 26/ 2007).......................................................................... 36
Carolina Water Service, Inc.
W- 354, SUB 297 – Order Granting Partial Rate Increase and Requiring
Customer Notice ( 07/ 05/ 2007)..................................................................................... 434
Dominion North Carolina Power
E- 22, SUB 444 – Order Approving Fuel Charge Adjustment ( 12/ 20/ 2007)........................ 37
Duke Energy Carolinas, LLC
E- 7, SUB 751 – Order on Reconsideration and Approving Offer of
Settlement ( 02/ 06/ 2007).................................................................................................. 85
E- 7, SUB 790 – Order Granting Certificate of Public Convenience and
Necessity with Conditions ( 03/ 21/ 2007)........................................................................ 52
E- 7, SUB 825 – Order Approving Fuel Charge Adjustment ( 06/ 21/ 2007)........................ 177
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 – Order
Approving Stipulation and Deciding Non- Settled Issues ( 12/ 20/ 2007)....................... 101
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 –
Errata Order ( 12/ 21/ 2007)............................................................................................. 175
i
Ellerbe Telephone Company
P- 21, SUB 71; P- 35, SUB 107; P- 61, Sub 95 – Recommended
Arbitration Order ( 12/ 20/ 2007)..................................................................................... 274
Enviracon Utilities, Inc.
W- 1236, SUB 2 – Order Granting Partial Rate Increase ( 03/ 21/ 2007).............................. 460
Frontier Energy, LLC
G- 40, SUB 66 – Order on Annual Review of Gas Cost ( 04/ 19/ 2007)............................... 235
Glen- Tree Investments, LLC
G- 53, SUB 0; E- 65, SUB 0 – Order Approving Master Metering Plan
( 12/ 20/ 2007).................................................................................................................. 221
Insite Residential, LLC
G- 55, SUB 0 – Order Approving Natural Gas Master Metering
( 12/ 14/ 2007).................................................................................................................. 224
MebTel, Inc.
P- 35, SUB 96 – Order Concerning Access Tariff ( 04/ 25/ 2007)......................................... 376
North Topsail Utilities
W- 1143, SUB 8 – Recommended Order Denying Complaint ( 11/ 28/ 2007)...................... 416
Piedmont Natural Gas Company, Inc.
G- 9, SUB 528 – Order on Annual Review of Gas Costs ( 08/ 01/ 2007).............................. 194
G- 9, SUB 528 – Errata Order ( 08/ 15/ 2007)........................................................................ 220
G- 9, SUB 542 – Order on Annual Review of Gas Costs ( 11/ 19/ 2007).............................. 254
Public Service Company of North Carolina, Inc.
G- 5, SUB 300 – Order Dissolving Expansion Fund ( 05/ 22/ 2007)..................................... 225
G- 5, SUB 481 – Order on Reconsideration Amending Order and
Scheduling New Hearing ( 05/ 21/ 2007)........................................................................ 243
G- 5, SUB 488 – Order on Annual Review of Gas Costs ( 10/ 19/ 2007).............................. 227
Strickland Farms General Partnership
WR- 174, SUB 3; WR- 309, SUB 2 – Recommended Order Accepting
Stipulations ( 03/ 20/ 2007)............................................................................................. 505
Time Warner Cable Information Services ( North Carolina), LLC
P- 1262, SUB 2 – Recommended Arbitration Order ( 11/ 26/ 2007)..................................... 407
Toccoa Natural Gas
G- 41, SUB 23 – Order on Annual Review of Gas Costs ( 12/ 27/ 2007).............................. 266
ii
Verizon South, Inc.
P- 19, SUB 277 – Order Approving Alternative Proposal ( 10/ 26/ 2007)............................. 272
West Developers, LLC
G- 54, SUB 0 – Order Approving Natural Gas Metering Plan ( 12/ 14/ 2007)...................... 241
iii
GENERAL ORDERS
GENERAL ORDERS – TELECOMMUNICATIONS
Docket No. P- 100, Sub 110
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Telecommunications Relay Service,
North Carolina
)
)))))
ORDER APPROVING A DECREASE IN THE SURCHARGE, AUTHORIZING BILL MESSAGE/ INSERT NOTIFICATION, AND APPROVING A REVISION TO THE SURCHARGE REMITTANCE FORM
BY THE COMMISSION: On October 12, 2007, the Commission received a petition from the Public Staff seeking, inter alia, to revise the monthly surcharge imposed on all qualified residential and business local exchange facilities ( access lines) 1 in North Carolina to fund the Telecommunications Relay Service ( TRS) and equipment distribution program for the deaf and hard of hearing. Under G. S. 62- 157( b), the Commission requires local service providers to impose a monthly surcharge on qualified access lines to fund a relay service and an equipment distribution program. 2 The relay service and the equipment distribution program comprise Telecommunications Access North Carolina ( TANC). The Commission, after giving notice and an opportunity to be heard to interested parties, sets the amount of the monthly surcharge based on the amount of funding necessary to implement and operate TANC, including a reasonable margin for reserve ( reserve margin). The present monthly surcharge of $ 0.11 per access line went into effect in January 2002.3
In response to the Public Staff’s petition, the Commission issued an Order Seeking Comments on the Surcharge, Approving a Reserve Margin, and Authorizing Review of Reserve Margin and Surcharge Biennially on October 30, 2007. In that order, the Commission approved a $ 9.6 million reserve margin and the regular biennial review of the reserve margin and the surcharge amount, starting in October 2009. It further requested interested parties to this docket to file comments regarding the proposed decrease in the surcharge no later than November 9, 2007.
1 Participants in the Subscriber Line Charge Waiver Program and the Link- up Carolina Program are exempt from imposition of the surcharge under G. S. 62- 157( b).
2 Under G. S. 62- 157( a1)( 5), a “ local service provider” means a local exchange company, a competing local provider, or a telephone membership corporation.
3 In the Matter of Telecommunications Relay Service, Relay North Carolina, Order Authorizing Increase in Surcharge, Docket No. P- 100, Sub 110 ( Nov. 13, 2001).
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GENERAL ORDERS – TELECOMMUNICATIONS
BACKGROUND
In 2004, Session Law 2003- 341 amended G. S. 62- 157 to require that a similar surcharge be imposed on wireless connections in North Carolina to provide additional funds for an expansion of TANC’s services and to prepare for a potential increase in costs if the Federal Communications Commission ( FCC) required the states’ TRS funds to pay for intrastate video relay services ( VRS) and internet protocol relay services ( IP Relay). For these reasons, a wireless provider now collects the same monthly surcharge on wireless connections that is imposed on access lines and remits it to the Wireless 911 Board. The Wireless 911 Board then remits the surcharges to the appropriate Department of Health and Human Services ( DHHS) fund. The “ access line” fund and the “ wireless connection” fund are separate, but both operate to fund TANC’s services. The $ 0.11 monthly surcharge has been imposed on wireless connections in North Carolina since 2004.
PUBLIC STAFF’S PETITION
In its petition, the Public Staff also requested that the reserve margin be adjusted to reflect the increase in TANC’s services and the potential increase in TANC’s costs if the FCC required states to assume funding for VRS and IP Relay. The Public Staff proposed a $ 9.6 million reserve margin, which reflects $ 3 million to cover TANC’s six months of operating costs, plus $ 1.8 million for TANC’s relay contract expenses for six months and $ 4.8 million for six months of IP Relay and VRS costs.
According to the Public Staff, however, even with the increase in the reserve margin amount, incoming revenue continues to outpace TANC’s expenses significantly. For that reason, the Public Staff proposed to reduce the monthly surcharge from $ 0.11 per access line to $ 0.09 per access line. If the Commission approves this reduction, it will result in the monthly wireless surcharge being similarly reduced from $ 0.11 per wireless connection to $ 0.09 per wireless connection. Based on the Public Staff’s calculations, this reduction would bring the reserve margin to the approved $ 9.6 million in approximately 50 months, accounting for a ten percent increase in TANC’s employee and service expenses. The Public Staff further recommended that the Commission begin a regular biennial review of the reserve margin and surcharge amount in October 2009.
COMMENTS
The Commission received timely filed comments from AT& T North Carolina and AT& T Mobility, jointly, and from the North Carolina Telecommunications Industry Association, Inc. ( NCTIA). All comments supported the proposed decrease in the surcharge. Additionally, NCTIA indicated that it did not object to the decrease becoming effective immediately.
PUBLIC STAFF’S MOTION
In response to the comments in support of the proposed decrease, the Public Staff filed a Motion For An Order Approving A Decrease in the Surcharge, Authorizing Bill Message/ Insert Notification, and Approving a Revision in the Surcharge Remittance Form and proposed order on November 28, 2007. In that motion, the Public Staff requested that the Commission approve the requested decrease in the monthly TRS surcharge effective January 1, 2008, which should allow the
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GENERAL ORDERS – TELECOMMUNICATIONS
local service providers adequate time to reflect the decrease in their customers’ bills. As it has done in past revisions to the surcharge amount, the Public Staff also requested the Commission to require that local service providers notify their customers of the surcharge decrease by a bill message/ insert in their January bills as set forth in Appendix A.
The Public Staff additionally noted that confusion appears to exist regarding the portion of the monthly surcharge that the Commission has previously allowed local service providers to retain for collection, inquiry, and administrative expenses. Pursuant to the Commission’s February 5, 1991 Order Setting Surcharge and Procedures for Implementation of System and November 13, 2001 Order Authorizing Increase of Surcharge, local service providers are allowed to retain $ 0.01 per access line of each monthly access line surcharge to cover their collection, inquiry and administrative expenses. The confusion arises, however, because Session Law 2003- 341 amended G. S. 62- 157 to allow wireless providers to retain only one percent ( 1%) of the total amount of surcharge collected each month to cover administrative costs. 1 Therefore, the amount retained for administrative costs differs between local service providers and wireless providers.
Moreover, the Public Staff reported that local service providers frequently rely upon billing companies to collect and remit the TRS surcharge. Some of these companies are located out of state and may not be as familiar with differences between the Commission’s orders and the wireless connection provision of G. S. 62- 157. Additionally, certain providers have underestimated the amount that they may retain each month for billing and collection expenses by multiplying the $ 0.01 times the surcharge amount, as opposed to the approved method of multiplying $ 0.01 times the number of access lines. Finally, at the time of the previous change in the surcharge, some companies revised their surcharge amount belatedly. Therefore, the Public Staff attached to its motion a revised remittance form for local service providers, or their billing companies, to use when collecting and remitting the monthly surcharge. The new remittance form clearly shows that local service providers should collect the $ 0.09 TRS surcharge per access line, per month, but remit only $ 0.08 per access line, per month, to the DHHS to fund TANC. They should retain $ 0.01 per access line, per month, for administrative costs.
Finally, the Public Staff also requested in its motion that the Commission approve the use of this remittance form and require the North Carolina Division of Services for the Deaf and Hard of Hearing to post it on its TANC website at http:// dsdhh. dhhs. state. nc. us/ division/ tanc/ tanc. html so that it can be downloaded by those companies that require its use. The Public Staff requested that the Commission direct local service providers to rely upon this remittance form only when remitting their TRS surcharges to DHHS, because all other forms for remitting the TRS access line surcharge are obsolete with this change in the surcharge. The Public Staff noted that the TRS remittance form for wireless providers, which differs from the TRS remittance form for local service providers, may be downloaded from the Wireless 911 Board’s website.
WHEREUPON, the Commission reaches the following
CONCLUSIONS
1 G. S. 62- 157( i).
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GENERAL ORDERS – TELECOMMUNICATIONS
After careful consideration, the Commission concludes that it is appropriate to grant Public Staff’s Motion.
Specifically, the Commission approves the reduction in the TRS surcharge from $. 11 per access line per month to $. 09 per access line per month, effective January 1, 2008. Also, the Commission approves the use of the revised remittance form attached hereto as Appendix B and requires the North Carolina Division of Services for the Deaf and Hard of Hearing to post it on its TANC website at http:// dsdhh. dhhs. state. nc. us/ division/ tanc/ tanc. html so that it can be downloaded by those companies that require its use. Furthermore, as recommended by the Public Staff, the Commission directs local service providers to rely upon this remittance form only when remitting their TRS surcharges to DHHS, because all other forms for remitting the TRS access line surcharge are obsolete with this change in the surcharge. The Public Staff noted that the TRS remittance form for wireless providers, which differs from the TRS remittance form for local service providers, may be downloaded from the Wireless 911 Board’s website.
IT IS, THEREFORE, ORDERED as follows:
1. That the monthly TRS surcharge be decreased from $ 0.11 per access line to $ 0.09 per access line effective on January 1, 2008. The decrease should be reflected in customers’ bills issued on or after January 1, 2008.
2. That the bill message/ insert as set forth in Appendix A shall appear in customers’ January bills, issued on or after January 1, 2008.
3. That local service providers be authorized to continue to retain $ 0.01 per access line, per month, of the TRS access line surcharge for collection, inquiry, and administrative expenses.
4. That the TRS surcharge remittance form attached hereto as Appendix B is approved for use by local service providers to remit their TRS access line surcharges to DHHS. With this change in the surcharge, all other TRS remittance forms are obsolete. Therefore, local service providers should rely exclusively upon this form in remitting their TRS access line surcharges to DHHS.
5. That the Division of Services for the Deaf and Hard of Hearing shall post the revised TRS surcharge remittance form, attached hereto as Appendix B, on the TANC website so as to make it available for downloading.
ISSUED BY ORDER OF THE COMMISSION
This the 13th day of December , 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
kh121307.01
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GENERAL ORDERS – TELECOMMUNICATIONS
APPENDIX A
NOTICE OF TELECOMMUNICATIONS RELAY SERVICE ( TRS) SURCHARGE DECREASE
Effective with telephone bills issued on or after January 1, 2008, the Telecommunications Relay Service ( TRS) surcharge is $ 0.09 per access line, per month. On December ____, 2007, the North Carolina Utilities Commission authorized a decrease in the monthly TRS surcharge amount from $ 0.11 to $ 0.09 to maintain adequate funding for Telecommunications Access North Carolina ( TANC). TANC is a program within the North Carolina Department of Health and Human Services that enables persons with hearing, speech, and vision impairments to communicate with others by telephone.
APPENDIX B
NC DEPARTMENT OF HEALTH AND HUMAN SERVICES
DIVISION OF SERVICES FOR THE DEAF AND HARD OF HEARING
DHHS- RELAY NORTH CAROLINA
TELECOMMUNICATIONS RELAY SERVICE ( TRS) SURCHARGE MONTHLY REPORT
SURCHARGES ARE TO BE COLLECTED IN ACCORDANCE WITH N. C. G. S. § 62- 157 AND NORTH CAROLINA UTILITIES COMMISSION ORDERS IN DOCKET P- 100, SUB 110, AND ARE TO BE REMITTED MONTHLY, ACCOMPANYING THIS REPORT, NO LATER THAN THE TWENTIETH ( 20TH) OF THE FOLLOWING MONTH. CHECKS SHOULD BE MADE PAYABLE TO: DHHS – RELAY NORTH CAROLINA AND SHOULD BE MAILED AS FOLLOWS:
DHHS – Controller’s Office A/ R
2025 MAIL SERVICE CENTER
RALEIGH, NC 27699- 2025
LEC/ CLP/ TMC: _______________________________________________________________________________
Surcharges Collected/ Billed for Calendar Month Ending: _______________________________________________
Month / Day / Year
Number of Qualified Access Lines Billed During Calendar Month: _____________________
Number of Qualified Access Lines Collected During Calendar Month: _____________________
Surcharge Billed ($. 09 per qualified access line): _____________________
Less: Billing and Collection Charge ($ .01 per access line collected): ______________
Less: Uncollectibles/ Adjustments for Prior Periods ______________
Net Amount Remitted to DHHS: ____________
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GENERAL ORDERS – TELECOMMUNICATIONS
Remitted by ( COMPANY, if different from above) __________________________________________________
( Please Print)
Authorized by __________________________________________
( Please print):
Authorized Signature: __________________________________________
Date: __________________________________________
DOCKET NO. P - 100, SUB 110
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Telecommunications Relay Service, North Carolina
)
)
ERRATA ORDER
BY THE CHAIRMAN: On December 13, 2007, the Commission issued its Order Approving A Decrease In The Surcharge, Authorizing Bill Message/ Insert Notification, and Approving A Revision To The Surcharge Remittance Form, which included Appendix A – Notice of Telecommunications Relay Service ( TRS) Surcharge Decrease which reflected a blank date for the issuance of the Order. This was an error. The second sentence of the notice set forth is Appendix A should read “ On December 13, 2007, the North Carolina Utilities Commission authorized a decrease in the monthly TRS surcharge amount from $ 0.11 to $ 0.09 to maintain adequate funding for Telecommunications Access North Carolina ( TANC).”
IT IS, THEREFORE, SO ORDERED.
ISSUED BY ORDER OF THE COMMISSION.
This the 14th day of December, 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
kh121407.01
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GENERAL ORDERS – TELECOMMUNICATIONS
DOCKET NO. P - 100, SUB 133f
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Lifeline and Link- up Service Pursuant to Section 254 of the Telecommunication Act of 1996
)
)
)
ORDER CONCERNING TASK FORCE REPORT AND AUTHORIZING PILOT PROGRAM
BY THE COMMISSION: On July 16, 2007, the Lifeline/ Linkup Task Force submitted its semi- annual report to the Commission, as requested in the Commission’s Order Requesting Further Study To Adopt Lifeline/ Link- Up Program Expansion, dated August 4, 2005.
The Task Force reported that, as of June 30, 2007, there were 121,228 households receiving Lifeline benefits. During the period January 1, 2007 through June 30, 2007, there were 3,022 households that received Link- Up discounts for the cost of connecting telephone service. In comparison, the December 31, 2006 reports filed by local providers reflected 126,408 Lifeline recipients. The Task Force also reported that the December 2006 reports showed that, from July 1, 2006 to December 31, 2006, there were 3,133 households that received Link- Up discounts. However, not all local telephone providers have filed their Lifeline/ Link- Up statistics for the January 1, 2007 to June 30, 2007 period, so total numbers are tentative.
The Commission, in its previous Order, also instructed the Task Force to continue studying methods to streamline the application and eligibility processing for the Lifeline/ Link- Up benefits. The Task Force has studied several ways to expand program participation since that time.
As a first step to increase Lifeline/ Link- Up participation, the Task Force recommended streamlining the enrollment process for Lifeline recipients who receive Food Stamps. Under the current system, once a person is found eligible to receive Food and Nutrition Services ( Food Stamps), Medicaid, Work First, Supplemental Security Income ( SSI), Low Income Energy Assistance Program ( LIHEAP) or Section 8 housing ( hereafter collectively referred to as “ qualifying benefit programs”), that person is automatically eligible to receive Lifeline/ Link- Up benefits. However, before an individual can receive such benefits, county Department of Social Services ( DSS) offices must receive the applications and verify eligibility for all of the qualifying benefits programs except Section 8 housing and SSI.
The Task Force recommended that the North Carolina Department of Health and Human Services ( DHHS) data system, which maintains eligibility information on all recipients of Food Stamps, Medicaid, SSI, Work First and LIHEAP, be used to streamline the enrollment process. The Task Force has been working with DHHS to create a data file of individuals who have met the Food Stamps criteria. This file, once created, would be provided to the telephone companies monthly.
In the streamlined enrollment process, DHHS would scan the records of eligible Food Stamp recipients monthly to identify the telephone company providing local telephone service to
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GENERAL ORDERS – TELECOMMUNICATIONS
each Food Stamp recipient. An electronic file would be created for each telephone company containing the names and telephone numbers of Food Stamp recipients receiving basic telephone service from that local exchange telephone company. The file would be mailed or sent by internet to the Lifeline/ Link- Up coordinator of each local exchange telephone company. Each company would then match the DHHS eligibility file with its customer account records and identify persons eligible for the discount who are not receiving it. The telephone company would automatically grant the Lifeline discount to those persons starting with the next billing cycle.
Since the above procedure would eliminate steps one and two that presently are required to enroll Food Stamp recipients in Lifeline and certify their eligibility to their local telephone company, it should help to increase enrollment in the program.
The Task Force also noted that the Food Stamp application form has been revised to include information about Lifeline/ Link- Up, obtain all necessary information about the applicant’s local telephone company, and obtain a waiver to allow the benefits eligibility information to be shared with the applicant’s telephone company. The major remaining step in implementing the new enrollment procedure is to add the Lifeline information to the Food Stamp computer data base. DHHS and the Task Force continue working towards that goal and remain optimistic that it can be met in 2007.
The Task Force also analyzed the Medicaid application process to determine if similar changes could be made to increase Lifeline enrollment. Here the outlook is more disappointing. The Task Force found that the Medicaid computer data base does not have the fields available for recording needed information. The Task Force concluded that it does not appear that similar changes allowing for the enrollment of Medicaid recipients will be possible in the near future.
With regard to Link- Up benefits for Food Stamp recipients, the enrollment procedure would remain similar to the present system. The reason is that those persons who do not have telephone service at the time of their Food Stamp application will have no telephone company to whom DHHS can send their Lifeline/ Link- Up eligibility information. Therefore, those persons would be given a form stating their eligibility for Lifeline/ Link- Up, and it would then be incumbent upon them to contact the local telephone company of their choice to establish service and become enrolled for Lifeline/ Link- Up benefits.
The Task Force believed that the above described modifications in the Lifeline enrollment procedures for Food Stamp recipients will make the application and verification processes more efficient and increase participation in the program.
As a second step to increase Lifeline/ Link- Up participation, the Task Force studied the possibility of using a self- certification procedure for enrolling applicants in Lifeline/ LinkUp and recommended that self- certification be tested in North Carolina.
The Task Force noted that the present steps requiring the social services worker and applicant to complete a separate verification form and requiring the social services worker to send the completed form to the applicant’s local telephone company reduce the efficiency of the
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GENERAL ORDERS – TELECOMMUNICATIONS
eligibility process, while self- certification may be an avenue to improve its efficiency. Once fully implemented, self- certification would eliminate those two steps and, instead, the consumer could obtain a self- certification form from any number of sources, including the telephone company, DSS and other human service agencies. In order to reduce the possibility of fraud, the Task Force recommended that the self- certification form include a section in which the consumer would certify, under penalty of perjury, that he/ she is a recipient of one or more qualifying benefits.
Verizon, Embarq, the smaller independent telephone companies and the telephone membership corporations have concerns about the additional administrative costs that self- certification could require, as well as the potential for fraud and the necessity for conducting eligibility reviews. However, the Task Force noted that AT& T uses self- certification in all of the other southern states it serves and that AT& T favors adopting such a system in North Carolina. AT& T is willing to try self- certification for a period of time to see how it works. Therefore, the Task Force recommended that the Commission approve a self- certification pilot program by AT& T for at least one year.
The Task Force also addressed the feasibility of adding two additional eligibility criteria, the National School Lunch Program ( NSL) and an income test, to expand Lifeline/ Link- Up participation, as earlier requested by the Commission.
NSL is administered jointly by the Department of Agriculture ( USDA) and the North Carolina Department of Public Instruction ( DPI). By federal law, a student’s eligibility for free or reduced school meals is confidential information. DPI is authorized to share such information with other state agencies, such as Medicaid and the North Carolina Children’s Health Insurance Program, for a few limited purposes. However, there is no authority for NSL data sharing between DPI, or the USDA, and DHHS.
The Task Force observed that, in some states, the state agency that manages the Lifeline/ Link- Up data is also the agency that administers NSL, such as the Department of Social Services. Furthermore, other states have built the necessary information links by having a third- party administrator manage the Lifeline/ Link- Up program and by giving the administrator the legal authority to receive all necessary information from the agencies that administer the qualifying benefit programs. North Carolina would need to make several significant changes in order to implement either of those models.
The Task Force pointed out that, to qualify for NSL, the applicant’s household must be at or below 130% of the federal poverty guidelines. Furthermore, children in households that receive Food Stamps or Work First are automatically eligible for free school meals. The Task Force concluded that many of the households that would be added by including NSL as a Lifeline/ Link- Up criteria are already covered under Food Stamps and Work First.
The Task Force has not conducted an exhaustive study, but there seem to be no definitive statistics showing that NSL eligibility criteria results in a substantial increase in Lifeline/ Link- Up participation. The Task Force recommended not adopting the NSL program as an automatic eligibility criterion at this time.
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GENERAL ORDERS – TELECOMMUNICATIONS
The Task Force also studied the possibility of adding household income as an eligibility criterion. The Task Force stated that, in contradistinction to certification based on a person’s eligibility for Foods Stamps, Medicaid and other qualifying benefits, separate income verification would be necessary if such a criterion were to be adopted. Furthermore, the FCC has recommended that this income verification function be the responsibility of the local telephone companies. However, the telephone companies do not have local offices in most areas, and the administrative costs of reviewing and verifying applications based on income eligibility could be substantial. The Task Force also believed it would not be practical to place this additional burden on the Food Stamp, Medicaid, Work First or SSI eligibility workers.
The Task Force also explored establishing an information link between DHHS and the North Carolina Department of Revenue ( DOR) to enable DHHS to verify a Lifeline/ Link- Up applicant’s income and certify his/ her eligibility to the telephone company. The Task Force stated that, similar to NSL information, the authority for sharing DOR individual taxpayer information with other agencies is very limited. The Task Force argued that these barriers and the cost of administering a Lifeline/ Link- Up income criterion render that option infeasible at this time.
Lastly, the Task Force stated that it has been working with the North Carolina Families Accessing Services Through Technology ( NC FAST) to ensure that Lifeline/ Link- Up is among the public benefit programs offered under NC FAST. The Task Force stated that the target date for implementing NC FAST has been pushed back indefinitely because of funding and design considerations.
In concluding its report to the Commission, the Task Force reported that 200,000 Lifeline/ Link- Up brochures were initially printed and that all but approximately 5,000 have been distributed to numerous agencies, telephone companies and organizations for distribution to residents. Also, a PDF version of the Lifeline/ Link- Up brochure is available on the Commission’s web site and on the DHHS wed site. Lastly, to ensure further outreach, AT& T has agreed to pay for 100 posters to be printed for placement in each of the DSS offices throughout the state.
WHEREUPON, the Commission reaches the following
CONCLUSIONS
After careful consideration, the Commission concludes that the following actions should be taken to expand the availability of Lifeline/ Link- Up benefits to qualified individuals: ( 1) authorize the streamlining of the Lifeline/ Link- Up enrollment procedures for Food Stamps as recommended by the Task Force to efficiently inform recipients of Food Stamps of their eligibility for Lifeline and to certify their eligibility to their telephone company; ( 2) approve a pilot program by AT& T to allow self- certification of AT& T’s customers for Lifeline/ Link- Up; and ( 3) decline to adopt the NSL and household income eligibility criteria at this time for the reasons as generally stated by the Task Force.
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GENERAL ORDERS – TELECOMMUNICATIONS
The Commission commends the Task Force for its work thus far and believes that the Task Force should continue to work with the relevant human services agencies and local exchange telephone companies to further streamline the process of enrolling program participants. Based on the Task Force’s report that the NC FAST project will be deferred indefinitely, the Commission continues to encourage the human services agencies and the local exchange telephone companies to discuss and analyze alternatives to expand the enrollment of Lifeline/ Link- Up benefits to qualified recipients. In addition, the efficiency gains in the area of application processing should be beneficial to the agencies and telephone companies for the statistical reporting of Lifeline/ Link- Up recipients.
The Commission is also supportive of the pilot study proposed by AT& T relating to self- certification to receive Lifeline/ Link- Up benefits for qualifying recipients. We note the opposition expressed to this approach by Verizon, Embarq, the smaller independent telephone companies, and the telephone membership corporations to this approach, but we conclude that there is sufficient merit to the approach that AT& T should be allowed to conduct a twelve- month pilot study to gain information to evaluate whether the self- certification for Lifeline/ Link- Up benefits approach should be expanded to include other local exchange telephone companies.
However, the Commission has one concern about the form AT& T wants to use. Certainly, prevention of fraud in a self- certification context is an important consideration, and the Commission appreciates the motivation behind the Task Force’s recommendation that the self- certification form include a section requiring the consumer to certify, under penalty of perjury, that he/ she is the recipient of one or more of the qualifying benefits. However, the Commission is unaware of any state statutory authority allowing it to subject a Lifeline recipient to prosecution for perjury for making a false, but unsworn, 1 statement in order to secure this benefit. State law does provide that if an applicant for benefits knowingly makes false statements to secure benefits to which he or she otherwise would not be entitled may subject the applicant to criminal prosecution. G. S. 14- 100. Thus, the Commission believes that the self- certification form should be modified as follows:
I certify that I am a current recipient of the above program( s) and that I am aware that knowingly providing false information to receive or to continue to receive the Lifeline/ LinkUp benefit may subject me to criminal penalties. Further, I certify that I will notify AT& T North Carolina when I am no longer participating in at least one of the above designated program( s)…
Lastly, it appears that the NSL and household income criteria should not be adopted to expand automatic enrollment for Lifeline/ Link- Up benefits. The Task Force explained that the lack of cohesion between NSL and household income with the other social benefits programs would prove too cumbersome to implement. Also, the use of these two additional criteria raised concerns as to degree of confidentiality for the applicants’ data that would be required to receive Lifeline/ Link- Up benefits. It also appears that there would be a significant degree of overlap of
1 Under North Carolina law, perjury is a defined as a false statement under oath, knowingly, willfully and designedly made, in a proceeding in a court of competent jurisdiction or concerning a matter where the affiant is required by law to be sworn as to some matter material to the issue or point in question. G. S. 4- 209; State v Smith, 230 N. C. 198, 52 SE2d 348 ( 1949). 11
GENERAL ORDERS – TELECOMMUNICATIONS
households that currently qualify for Lifeline/ Link- Up benefits based on the present group social services programs if the NSL and household income criteria were added to qualify for Lifeline/ Link- Up benefits.
IT IS, THEREFORE, ORDERED as follows:
1. That the streamlining of Lifeline enrollment procedures as recommended by the Task Force be authorized. The Task Force shall continue to study and report to the Commission regarding any modification that ensures further operational efficiencies in the enrollment procedure for Lifeline/ Link- Up benefits.
2. That AT& T be allowed to implement a twelve- month pilot program for self- certification by qualified recipients to receive Lifeline/ Link- Up benefits, provided that the self- certification form is modified as set forth above. AT& T is directed to submit to the Commission 30 days after the completion of the twelve- month pilot program its findings to include, but not be limited to the following information:
a. The raw number and percentage of applicants subscribing to Lifeline/ LinkUp benefits through self- certification.
b. The raw number and percentage of applicants provided Lifeline/ LinkUp benefits through self- certification and who later were determined to have knowingly provided false information in their application.
c. The identifiable additional cost incurred by AT& T associated with the administration and tracking of applicants receiving Lifeline/ LinkUp benefits through self- certification and the methodology used to identify such costs.
d. AT& T’s recommendation as to the continuation of self- certification.
3. That NSL and household income not be established as criterion to ensure automatic enrollment for Lifeline/ Link- Up benefits at this time.
ISSUED BY ORDER OF THE COMMISSION.
This the 5th day of September , 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
je090407.02
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
DOCKET NO. E- 2, SUB 903
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Application by Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc. for Authority to Adjust Its Electric Rates Pursuant to G. S. 62- 133.2 and NCUC Rule R8- 55
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ORDER APPROVING FUEL CHARGE ADJUSTMENT
HEARD: Tuesday, August 7, 2007, at 9: 00 a. m., in the Commission Hearing Room, Dobbs Building, 430 North Salisbury Street, Raleigh, North Carolina
BEFORE: Chairman Edward S. Finley, Jr., Presiding and Commissioners Sam J. Ervin, IV, Lorinzo L. Joyner, and William T. Culpepper, III
APPEARANCES:
For the Applicant:
Len S. Anthony, Deputy General Counsel – Regulatory Affairs, Progress Energy Service Company, Post Office Box 1551, Raleigh, North Carolina 27602- 1551
Dwight Allen, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLP, Post Office Box 2611, Raleigh, North Carolina 27602- 2611
For the Public Staff-- North Carolina Utilities Commission:
Antoinette R. Wike, Chief Counsel, and Tab Hunter, Staff Attorney, Public Staff-- North Carolina Utilities Commission, 4326 Mail Service Center, Raleigh, North Carolina 27699- 4326
For the Attorney General:
Len G. Green, Assistant Attorney General, North Carolina Department of Justice, Post Office Box 629, Raleigh, North Carolina 27602- 0629
For the Carolina Utility Customers Association, Inc.:
James P. West, West Law Offices, P. C., Suite 2325, Two Hannover Square, 434 Fayetteville Street, Raleigh, North Carolina 27601
For the Carolina Industrial Group for Fair Utility Rates II:
Ralph McDonald, Bailey & Dixon, L. L. P., Post Office Box 1351, Raleigh, North Carolina 27602- 1351
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
BY THE COMMISSION: Pursuant to G. S. 62- 133.2 and Commission Rule R8- 55( e), Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc. ( PEC or Company), is required to file, at least 60 days prior to the first Tuesday in August of each year, an Application for a change in rates based solely on changes in the cost of fuel and the fuel component of purchased power. On June 8, 2007, PEC filed its Application, along with the testimony and exhibits of Company witnesses Dewey S. Roberts and Bruce P. Barkley. Pursuant to Ordering Paragraph No. 3 in the Commission’s Order in Docket No. E- 2, Sub 889, the Company requested an increment of 1.011¢/ kWh ( 1.045¢/ kWh including gross receipts tax) to the base fuel factor of 1.276¢/ kWh approved in PEC’s last general rate case, Docket No. E- 2, Sub 537, and a recommended total base fuel factor of 2.287¢/ kWh. The Company also requested an increment of 0.388¢/ kWh ( 0.401¢/ kWh including gross receipts tax) for the Experience Modification Factor ( EMF) rider to collect $ 144.4 million of under- recovered fuel expense. The Company proposed that the EMF rider be in effect for a fixed 12- month period.
On June 11, 2007, the Carolina Industrial Group for Fair Utility Rates II ( CIGFUR II) filed a petition to intervene, which the Commission granted on June 14, 2007.
On June 22, 2007, the Carolina Utility Customers Association, Inc. ( CUCA) filed a petition to intervene, which the Commission granted on June 27, 2007.
On July 18, 2007, the Attorney General filed a notice of intervention pursuant to G. S. 62- 20.
The intervention of the Public Staff is noted pursuant to G. S. 62- 15( d) and Commission Rule R1- 19( e).
On June 25, 2007, the Commission issued its Order Scheduling Hearing Dates, Establishing Filing Dates and Discovery Guidelines, and Requiring Public Notice. The Commission scheduled the hearing for August 7, 2007, and required that intervenor testimony and exhibits, as well as petitions to intervene, be filed by July 25, 2007.
On July 25, 2007, the Public Staff filed the testimony of Michael C. Maness and the affidavits of Randy T. Edwards and Thomas S. Lam.
On August 1, 2007 PEC filed the rebuttal testimony of Bruce P. Barkley.
On August 6, 2007, PEC filed the affidavits of publication showing that public notice had been given as required by Rule R8- 55( f) and the Commission’s June 25, 2007 Order.
The docket came on for hearing, as ordered, on August 7, 2007. PEC presented the testimony of Dewey S. Roberts and Bruce P. Barkley. The Public Staff presented the testimony of Michael C. Maness. No other party presented a witness; however, with agreement from the parties, the Commission admitted the affidavits filed by Randy T. Edwards and Thomas S. Lam. The Commission requested the filing of proposed orders or briefs by September 4, 2007.
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
On September 4, 2007, PEC filed a proposed order. The Public Staff filed certain proposed findings of fact, evidence and conclusions, and ordering paragraphs. CUCA filed a brief and motion for reconsideration pursuant to G. S. 62- 80 in this Docket and Docket No. E- 2, Sub 889. On September 6, 2007, PEC filed a response in opposition to CUCA’s motion for reconsideration.
Based upon the Company’s verified Application, the testimony and exhibits received into evidence at the hearing, and the record as a whole, the Commission now makes the following:
FINDINGS OF FACT
1. Carolina Power & Light Company, db/ a Progress Energy Carolinas, Inc., is duly organized as a public utility company under the laws of the State of North Carolina and is subject to the jurisdiction of the North Carolina Utilities Commission. PEC is engaged in the business of generating, transmitting, and selling electric power to the public in North Carolina. PEC is lawfully before this Commission based upon its Application filed pursuant to G. S. 62- 133.2 and Commission Rule R8- 55.
2. The test period for purposes of this proceeding is the 12- month period ended March 31, 2007.
3. PEC’s fuel procurement and power purchasing practices were reasonable and prudent during the test period.
4. The performance of PEC’s base load plants during the test period was reasonable and prudent.
5. The test period North Carolina retail fuel expense underrecovery in this proceeding is $ 135,971,836. It is appropriate to increase this fuel expense underrecovery by $ 8,217,000 to reflect interest through March 31, 2007, related to the Settlement Agreements approved in Docket No. E- 2, Subs 868 and 889.
6. It is reasonable to apply a 58% fuel ratio to the energy cost of purchases from power marketers and other sellers that are unable or unwilling to provide PEC with actual fuel costs.
7. The proper base fuel factor for PEC calculated pursuant to G. S. 62- 133.2 is 2.288¢/ kWh ( 2.364¢/ kWh including gross receipts tax), which is an increment of 1.012¢/ kWh ( 1.046¢/ kWh including gross receipts tax) above the base fuel factor established in Docket No. E- 2, Sub 537.
8. The appropriate EMF increment to use in this proceeding is 0.387¢/ kWh ( 0.400¢/ kWh including gross receipts tax) based on a total fuel cost underrecovery of $ 144,188,836.
EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 1
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
This finding of fact is essentially informational, procedural, and jurisdictional in nature and is not controversial.
EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 2
G. S. 62- 133.2 sets out the verified, annualized information that each electric utility is required to furnish to the Commission in an annual fuel charge adjustment proceeding for a historical 12- month period. Commission Rule R8- 55( b) prescribes the twelve months ending March 31 as the test period for PEC. All pre- filed exhibits and direct testimony submitted by the Company in support of its Application utilized the twelve months ended March 31, 2007, as the test year for purposes of this proceeding. The Company made the standard adjustments to the test period data to reflect normalizations for weather, customer growth, generation mix, and Southeastern Power Administration ( SEPA) and North Carolina Eastern Municipal Power Agency ( NCEMPA) transactions.
The test period proposed by the Company was not challenged by any party, and the Commission concludes that the test period appropriate for use in this proceeding is the twelve months ended March 31, 2007.
EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 3 & 4
The evidence for these findings can be found in the Company’s Application and the monthly fuel reports on file with the Commission, as well as the testimony of Company witnesses Barkley and Roberts and the affidavits of Public Staff witnesses Edwards and Lam.
Commission Rule R8- 52( b) requires each utility to file a Fuel Procurement Practice Report at least once every ten years, as well as each time the utility's fuel procurement practices change. In its Application, the Company indicated that the procedures relevant to the Company’s test period fuel procurement practices were filed in the Fuel Procurement Practices Report, which was updated in June 2005. In addition, the Company files monthly reports of its fuel costs pursuant to Rule R8- 52( a). These reports were filed in Docket No. E- 2, Sub 888 for calendar year 2006 and Docket No. E- 2, Sub 898 for calendar year 2007.
Company witness Barkley described in detail the Company’s coal and gas procurement practices. The Company relies on short- term and long- term simulation models to estimate the coal and gas requirements for the PEC generating plants. Using this information in conjunction with plant inventory levels and supply risks, a determination is made of the coal requirements at that time. Once this determination is made, coal suppliers are contacted and asked to submit bids to meet the coal requirements. Coal contracts are awarded based on an economic evaluation, supplier credit review, past performance, and coal specifications. Gas contracts are awarded using a similar process. During the test period, PEC purchased coal at an average price of $ 71.35 per ton and gas at $ 8.41/ mmbtu, excluding fixed costs.
Witness Barkley further testified that PEC continuously evaluates the term and spot markets for fuel and purchased power in order to determine the appropriate portfolio of long 16
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
term and spot purchases that ensures a reliable supply of electricity to customers at the lowest reasonable prices. Such evaluations include daily, weekly, and monthly solicitations and subscriptions to fuel pricing services and trade publications. Witness Barkley concluded that PEC prudently operated its generation resources and purchased power during the period under review in order to minimize its costs.
Witness Roberts testified that PEC mitigates the impact of increasing fuel costs by using a diverse mix of generating plant resources. The Company’s efficient use of nuclear, fossil- fueled, and hydroelectric plants helps lessen the impacts of volatility in the price or supply of any one fuel source. This is illustrated by the fact that over 45% of PEC’s generation during the test period was provided by nuclear plants at an average fuel cost of $ 4.50/ MWH— less than 20% of the cost of coal generation and less than 5% of the cost of natural gas generation.
Regarding power plant performance, witness Roberts testified that PEC uses two different measures to evaluate the performance of its generating facilities-- the equivalent availability factor and the capacity factor. The equivalent availability factor is the percentage of a given period time that a facility is available to operate at full power if needed. It describes how well a facility was operated, even in cases where the unit was used in a load following application. Capacity factor measures the generation a facility actually produces against the amount of generation that theoretically could be produced in a given time period, based on the facility’s maximum dependable capacity.
Regarding the operation of PEC’s natural gas and coal fired plants, witness Roberts explained that PEC’s combustion turbines averaged a 94.58% equivalent availability and a 3.77% capacity factor for the twelve- month period ending March 31, 2007. He testified that these performance indicators are consistent with combustion turbine generation’s intended purpose. PEC’s combustion turbine generation was almost always available for use, but operated minimally. PEC’s intermediate Richmond County combined cycle unit had a 90.18% equivalent availability and a 28.21% capacity factor for the twelve- month period ending March 31, 2007. The Company’s intermediate coal fired units had an average equivalent availability factor of 88.79% and a capacity factor of 59.37% for the twelve- month period ending March 31, 2007. Witness Roberts concluded that these performance indicators for the Company’s intermediate units are indicative of good performance and management. Witness Roberts testified that PEC’s fossil base load units had an average equivalent availability of 90.04% and a capacity factor of 69.53% for the twelve- month period ending March 31, 2007. Thus, he concluded that the fossil base load units were also well managed and operated.
With regard to the operation of PEC’s nuclear generation plants, witness Roberts explained that, for the twelve- month period ending March 31, 2007, the Company’s nuclear generation system achieved a net capacity factor of 91.84%. This capacity factor includes nuclear plant refueling outages. In contrast, the North American Electric Reliability Council’s ( NERC) five- year average capacity factor for 2001- 2005, appropriately weighted for the size and type of each plant in PEC’s nuclear system, was 87.51%. The Company's nuclear system incurred a 3.2% forced outage rate during the twelve- month period ending March 31, 2007, compared to the industry average of 4.49% for similar size nuclear generators. Witness Roberts
17
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
concluded that these performance indicators reflect good nuclear performance and management for the review period.
Witness Roberts explained that Commission Rule R8- 55 provides that a utility shall enjoy a rebuttable presumption of prudent operation of its nuclear facilities if it achieves a system average nuclear capacity factor during the test period that is ( a) at least equal to the national average capacity factor for nuclear production facilities based on the most recent 5- year period available as reflected in the latest NERC Equipment Availability Report, appropriately weighted for size and type of plant, or ( b) an average systemwide nuclear capacity factor, based upon a two- year simple average of the systemwide capacity factors actually experienced in the test year and the preceding year, that is at least equal to the national average capacity factor for nuclear production facilities based on the most recent 5- year period available as reflected in the most recent NERC Equipment Availability Report, appropriately weighted for size and type of plant. Witness Roberts testified that the Company met the standard for prudent operation as set forth in Commission Rule R8- 55( i). Public Staff witness Lam verified the Company’s test year average capacity factor calculation.
Regarding power purchases to displace Company owned generation, witness Roberts testified that the Company is constantly reviewing power markets for purchase opportunities. He explained that PEC purchases power when there is reliable power available that is less expensive than the marginal cost of the Company’s available resources. This review of the power markets is done on an hourly, daily, weekly, and monthly basis. Also, with regard to long term resource planning, PEC always evaluates purchased power opportunities against self- build options.
No other party offered any evidence regarding PEC’s fuel procurement, power purchases, or base load performance during the test period. Thus, the Commission finds and concludes that PEC’s fuel procurement procedures and power purchasing practices and the operation of the Company’s base load plants were reasonable and prudent during the test period.
EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 5- 8
The evidence supporting these findings can be found in the testimony and exhibits of Company witnesses Barkley and Roberts, the affidavits of Public Staff witnesses Edwards and Lam and the testimony of Public Staff witness Maness.
In Barkley Exhibit No. 5, the Company calculated a fuel factor of 2.339¢/ kWh based on normalized capacity factors for its nuclear units in accordance with Commission Rule R8- 55( c)( 1), by using the five- year NERC Equipment Availability Report 2001- 2005 average for boiling water reactors ( BWRs) and pressurized water reactors ( PWRs). The workpapers included in Barkley Exhibit No. 9 show kWh normalization for customer growth and weather at both meter and generation levels performed in a manner consistent with that used in past cases. Normalization adjustments were also made for SEPA deliveries and hydro generation. The unit prices used for coal, nuclear, internal combustion turbines, purchases, and sales were also calculated in a manner consistent with that used in past cases. The NERC five- year capacity factors for Brunswick Unit Nos. 1 and 2, both BWRs, were normalized at 86.07%, and the capacity factors of the Robinson and Harris Units, both PWRs, were normalized at
18
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
89.18%. The Company’s NERC normalized calculations resulted in a system nuclear capacity factor of 87.51% using this data.
In Barkley Exhibit No. 5A, the Company calculated a fuel factor of 2.358¢/ kWh based on forecasted nuclear generation performance, kWh sales, and fuel cost. After reviewing the Company’s Application, Public Staff witness Lam concluded that this factor was reasonable. The computation of the 2.358¢/ kWh fuel factor is summarized below:
Generation Type MWhs Fuel Cost
Nuclear 28,664,829 $ 136,517,255
Purchases - Cogeneration 653,451 25,048,499
Purchases - AEP Rockport 2,015,402 37,921,107
Purchases - Broad River 546,978 59,638,816
Purchases - SEPA 182,228 0
Purchases - Other 208,963 8,207,774
Hydro 638,699 0
Coal 32,391,138 993,046,230
IC & CC 1,975,708 221,765,888
Sales ( 2,062,350) ( 60,079,732)
Total Adjusted 65,215,046 $ 1,422,065,837
Less NCEMPA:
PA Nuclear 3,856,189 19,247,300
PA Buy- Back & Surplus ( 109,776) ( 1,364,300)
PA Coal 1,359,471 43,292,400
System Projected Fuel Expense 1,360,890,437
Projected kWh meter sales 57,703,629,000
Projected Fuel Factor (¢/ kWh) 2.358
No other party presented any evidence regarding PEC's forecasted fuel cost during the period the rate set in this proceeding would be in effect, nor did any other party challenge PEC's forecasted fuel costs or fuel factor. Therefore, the Commission concludes that, in the absence of the Settlement Agreement approved in Docket No. E- 2, Sub 889, PEC would be entitled to a fuel factor of 2.358¢/ kWh ( 2.394¢/ kWh including gross receipts tax) pursuant to the provisions of G. S. 62- 133.2.
However, witness Barkley did not recommend the adoption of a factor of 2.339¢/ kWh or 2.358¢/ kWh. Instead, he recommended the establishment of a fuel factor of 2.287¢/ kWh based on the Settlement Agreement approved by the Commission in PEC’s 2006 fuel case proceeding, Docket No. E- 2, Sub 889. Witness Barkley explained that Ordering Paragraph No. 3 of the Commission’s September 25, 2006 Order issued in Docket No. E- 2, Sub 889 provides:
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
That effective for service rendered on and after October 1, 2007, an EMF shall be derived based upon PEC’s fuel cost under- recovery for the test year ending March 31, 2007, including any approved interest, and the prospective component of the fuel factor will be equal to 2.675¢/ kWh less the derived EMF.
Witness Barkley calculated and requested approval of an EMF of 0.388¢/ kWh. Therefore, the base fuel factor to be established in this proceeding pursuant to the Settlement Agreement, as recommended by PEC, is 2.287¢/ kWh.
Public Staff witness Lam also supported the derivation of a base fuel factor to be established in this proceeding based upon the Settlement Agreement approved by the Commission in Docket No. E- 2, Sub 889. Since the EMF recommended by the Public Staff equaled .387¢/ kWh, witness Lam recommended a corresponding base fuel factor of 2.288¢/ kWh.
As noted above, PEC witness Barkley also calculated and recommended that the Commission approve and establish an EMF increment equal to 0.388¢/ kWh in this proceeding in order to allow PEC to collect $ 144,378,411 of under- recovered fuel expense. Witness Barkley testified that the total under- recovered fuel expense of $ 144,378,411 consisted of three components. The first component was the test period under- recovery of $ 135,824,352 using the base fuel factors approved by the Commission in Docket No. E- 2, Sub 868, PEC’s 2005 fuel proceeding, and Docket No. E- 2, Sub 889, PEC’s 2006 fuel proceeding, which were in effect for billing purposes during the test year in this proceeding. The test period under- recovery amount of $ 135,824,352 also included the use of a 50% fuel to energy cost ratio to determine the fuel cost of certain power purchases made by PEC from power marketers and other sellers who did not provide PEC with the actual fuel costs of such purchases. The second component consisted of an adjustment of $ 147,484 added to the test period under- recovered fuel expense as a result of increasing the 50% fuel to energy cost ratio for certain power purchases to a 58% ratio for the reasons described below. The third component was $ 8,406,575 of interest calculated by witness Barkley consistent with his interpretation of the Settlement Agreements and the Commission Orders in Docket No. E- 2, Sub 868 and Docket No. E- 2, Sub 889, which authorized the accrual of interest on certain under- recovered fuel costs. Witness Barkley calculated the requested EMF increment of 0.388¢/ kWh ( 0.401¢/ kWh) by dividing the total under- recovered fuel cost of $ 144,378,411 by the projected North Carolina retail sales of 37,240,057,920 kWhs.
Public Staff witness Edwards reviewed the EMF increment rate rider requested by PEC and made only one adjustment. Based upon the recommendation of Public Staff witness Maness that the amount of interest included by PEC in its total under- recovered fuel costs should be reduced by $ 190,000, witness Edwards testified that PEC’s EMF increment rider should be based upon a total fuel cost under- recovery of $ 144,188,411 divided by the projected North Carolina retail sales of 37,240,057,920 kWhs. Therefore, witness Edwards recommended an EMF increment rider equal to 0.387¢/ kWh. This adjustment was opposed by PEC and is addressed elsewhere in this Order.
Concerning the 58% fuel to energy cost ratio, Public Staff Edwards explained that, during the test year utilized for purposes of this proceeding, PEC purchased power from a number of power marketers, as well as from other suppliers who did not provide PEC with the actual fuel costs associated with those purchases. In order to determine the percentage of these power 20
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
purchase costs properly categorized as fuel costs, the Public Staff recommended the adoption of the approach for addressing this issue used in prior cases.
For purposes of calculating a percentage to be applied in fuel proceedings held in 2007, the Public Staff performed a review of the aggregate fuel component of off- system sales for Duke Energy Carolinas, LLC ( Duke) and PEC for the twelve months ended December 31, 2006. These sales are set forth in each of the utilities' Monthly Fuel Reports. Unlike in past years, the off- system sales for Virginia Electric and Power Company, d/ b/ a Dominion North Carolina Power ( DNCP), were not utilized in this review for purposes of calculating the fuel- to- energy percentage. The rationale for excluding DNCP from this analysis was two- fold. First, evaluation of the data indicated that there were only two DNCP off- system sale transactions that were eligible for inclusion in determining the appropriate fuel- to- energy percentage. One of those two transactions appeared to utilize a " proxy percentage" to determine the fuel component of total energy costs, rather than actual fuel costs. The other transaction had an immaterial impact on the analysis. Second, neither of the transactions recorded megawatt hours for the associated off- system sales. Thus, the inclusion of neither of these transactions would provide meaningful data for use in the analysis. Therefore, the Public Staff considered it reasonable to exclude these transactions from the determination of the fuel- to- energy percentage for purposes of this proceeding.
Witness Edwards explained that despite the removal of DNCP transactions, overall, this analysis was similar to that performed by the Public Staff for the 1997 Stipulation addressing this issue ( which was applicable to the utilities' 1997 and 1998 fuel proceedings), and the similar 1999 Stipulation filed in Docket No. E- 2, Sub 748 ( applicable to the 1999, 2000, and 2001 fuel cost proceedings). Similar analyses were performed for the fuel proceedings held in 2002, 2003, 2004, 2005, and again in 2006. The methodology used for each of the abovementioned Stipulations and subsequent fuel proceedings has been accepted by the Commission as reasonable in each fuel case since the beginning of 1997.
G. S. 62- 133.2 requires that purchased power- related costs recovered through fuel proceedings consist of only the fuel cost component of those purchases. However, in its Order in Duke's 1996 fuel proceeding, the Commission stated that whether a proxy for actual fuel costs associated with these types of purchases would be acceptable in a future fuel proceeding would depend on " whether the proof can be accepted under the statute, whether the proffered information seems reasonably reliable, and whether or not alternative information is reasonably available." Public Staff witness Edwards stated that the Public Staff continues to consider it reasonable to use the utilities' off- system sales as a basis for determining the proxy fuel cost as described above. Because the sales made by marketers and other suppliers utilize the same types of generation resources that the utilities use to make their sales, the Public Staff believes that it is reasonable to assume for purposes of this proceeding that the fuel- to- energy percentage inherent in the purchases made by the utilities is similar to the percentage exhibited by the utilities' sales. Additionally, the information used by the Public Staff to determine the off- system sales fuel percentage was derived from the Monthly Fuel Reports filed with the Commission and, in the opinion of the Public Staff, that information is reasonably reliable. Finally, the Public Staff stated it is unaware of any alternative information concerning the fuel cost component of marketers' sales made to utilities that is currently available for use by the Commission. 21
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
Therefore, the Public Staff believes that the methodology used in past Stipulations and in the analysis proposed for use in this proceeding meets the criteria set forth in the 1996 Duke Order.
As part of its current review, the Public Staff analyzed the relevant off- system sales information in several different ways. The Public Staff’s analyses resulted in fuel percentages ranging from 56.61% to 60.53%, as set forth on Edwards Exhibit I. After evaluating all of the data and calculations, the Public Staff concludes that the off- system sales fuel ratio should be 58%. No other party challenged this recommendation or offered any alternative proposal.
The Commission notes that the fuel cost associated with marketer purchases is an important part of the Company’s overall fuel cost. The use of a ratio to determine marketer fuel cost evolved with the emergence of an active wholesale bulk power market in 1996, which prompted this Commission to address the issue in the 1996 Duke Power Company fuel case. In its Order in that proceeding, the Commission stated, “ When faced with a utility’s reliance upon some such form of proof [ i. e., a reasonable and reliable proxy] in a future fuel adjustment proceeding, the considerations will be whether the proof can be accepted under the statute, whether the proffered information seems reasonably reliable, and whether or not alternative information is reasonably available.” Recognizing that an active wholesale bulk power market continues to evolve and applying this standard to the evidence presented herein, the Commission concludes, as it has in past proceedings, that the methodology recommended and used by the Public Staff to determine the fuel cost component of purchases from power marketers and other suppliers ( 1) satisfies the requirements set forth in the 1996 Duke fuel case order and ( 2) is reasonable and will be accepted for purposes of this proceeding. The Commission approved the use of the 58% ratio in the most recent Duke Power fuel proceeding, Docket No. E- 7, Sub 825. The Commission also concludes that the use of a 58% ratio in this proceeding as recommended by Public Staff witness Edwards is reasonable and should be adopted for purposes of the proceeding.
As noted above, the only contested issue among the witnesses was the proper methodology for calculating the appropriate amount of interest on the under- recovery of PEC’s fuel costs that occurred as a result of a Settlement Agreement approved by the Commission in Docket No. E- 2, Sub 868, PEC’s 2005 fuel charge adjustment proceeding. PEC witness Barkley and Public Staff witness Maness agreed that it was appropriate to include interest in the determination of the EMF to be approved for PEC in this proceeding to enable PEC to begin collecting the accrued interest. However, PEC witness Barkley concluded that the appropriate amount of interest was approximately $ 8,407,000, while Public Staff witness Maness determined that the appropriate amount of interest was equal to $ 8,217,000.
In his testimony, Public Staff witness Maness pointed out that the Commission approved a Settlement Agreement in Docket No. E- 2, Sub 868 ( the Sub 868 Settlement Agreement) that provided for a lower base fuel factor than the base fuel justified by the evidence in that case. This lower fuel factor was placed into effect and was billed by PEC for service rendered between October 1, 2005, and September 30, 2006. The Sub 868 Agreement also included the following provision:
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PEC shall be allowed to charge and collect interest at the rate of 6%, compounded annually, on under- recovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, as a result of having adjusted the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding gross receipts tax, as proposed in its Application, until all such costs have been recovered.
Witness Maness noted that the Commission approved the Sub 868 Settlement Agreement and concluded that PEC would be allowed to collect the interest accrued pursuant to this Agreement as part of its EMF in future fuel proceedings, as actual amounts became known.
In Docket No. E- 2, Sub 889, PEC’s next fuel proceeding in 2006, witness Maness stated that the Commission approved another Settlement Agreement ( the Sub 889 Settlement Agreement) which provided for a total fuel factor ( including the EMF) for the period October 1, 2006, through September 30, 2007, which was lower than the total fuel factor justified by the evidence in that proceeding. The Sub 889 Agreement included the following provision:
PEC shall be allowed to charge and collect 6% interest on an amount equal to the under- recovery resulting from PEC agreeing to a total fuel factor of 2.55 cents per kWh in the 2006 case rather than a total fuel factor of 2.856 cents per kWh ( exclusive of gross receipts tax) until all such costs have been recovered.
Witness Maness testified that PEC had included interest accrued from October 1, 2005, through March 31, 2007, related to the Sub 868 and Sub 889 Settlement Agreements, in the EMF which PEC proposes to put into effect on October 1, 2007. Witness Maness agreed that PEC should begin collecting the interest which had already accrued through March 31, 2007, in the EMF approved in this proceeding; however, he testified that he had calculated a different amount on which interest should be computed than PEC.
PEC witness Barkley explained in his rebuttal testimony that PEC will collect the under- collections and interest associated with the Sub 868 Settlement Agreement over two annual billing periods. He testified that one portion will be recovered over the billing period beginning October 1, 2006, and the remainder will be collected during the period that will begin October 1, 2007. He also explained that the disagreement over the appropriate amount of interest pertains strictly to the timing of the repayment of the interest associated with the Sub 868 Settlement Agreement, which began on October 1, 2006, since the collection of the shortfall associated with the Sub 889 Settlement Agreement will not begin until October 1, 2007.
PEC witness Barkley and Public Staff witness Maness each used a different methodology to calculate their recommended interest amounts. The methodology used by Public Staff witness Maness is set forth in Maness Exhibit I, Schedule 2. The methodology used by PEC witness Barkley is set forth in Barkley Rebuttal Exhibit 2.
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Public Staff witness Maness testified that his method of calculating interest consisted of comparing two series of cash flows: ( 1) the incurrence and recovery of fuel costs pursuant to the Sub 868 and Sub 889 Settlement Agreements and ( 2) the incurrence and recovery of fuel costs that would have occurred in the absence of the Settlement Agreements. He stated that, by basing the interest calculation on the difference between cash flows experienced pursuant to the Agreements and those that would have been experienced had the Settlement Agreements not been approved, he had captured the impact of the Settlement Agreements on the Company’s cash flows.
According to witness Maness, both he and the Company increased the principal amount on which interest is based from zero to approximately $ 60 million for the first six months covered by the Sub 868 Settlement Agreement ( October 2005 through March 2006), which reflected the difference between the net cash flow that actually occurred during that period as a result of the Settlement Agreement and the net cash flow that would have occurred in the absence of the Settlement Agreement. However, for the first six months of the period during which the under- recovery resulting from the Sub 868 Settlement Agreement began to be collected through the EMF approved in Sub 889 ( October 2006 through March 2007), he reduced the principal amount by approximately $ 27 million ( about six months’ worth of the initial principal buildup of $ 60 million) for purposes of the interest calculation, while the Company reduced the principal amount by approximately $ 12 million. Witness Maness explained that he used the same approach in calculating the buildup of the principal during the collection period as he did in calculating the reduction of the principal during the true- up period, i. e., a comparison of cash flows with and without the Agreement. On the other hand, witness Maness testified that the Company departed from this approach in the second part of its calculation and, instead of comparing cash flows with and without the Settlement Agreement, reduced the $ 60 million principal by only a pro rata portion of the cash flows that occurred with the Settlement Agreement.
Witness Maness stated that his method is preferable to that used by the Company for several reasons, including the fact that his recommended calculation was based on a consistent, direct examination of the two alternative series of cash flows, and it captured the actual differences in those cash flows for purposes of the calculation of interest, while the Company’s method essentially switched from using the differences in the cash flows under each scenario to using the cash flows related only to the with- Settlement Agreement scenario. He stated that the Company’s approach departed from measurement of the actual timing of cash flows that have occurred due to the Agreements, and could not provide an accurate calculation of interest.
PEC witness Barkley testified in rebuttal that under- recoveries and interest are recovered through EMFs established by Commission Rule R8- 55( c)( 2). He further testified that the Public Staff’s attempt to “ link the monthly collection of amounts through an EMF to the time period in which the under- recovery arose is not supported by Rule R8- 55 or the Commission’s normal operating procedures for electric utility fuel reviews.” According to witness Barkley, witness Maness assumed that the EMF approved in Sub 889 would result in PEC recovering $ 60 million of the $ 140 million difference between the revenues that would have been collected under the 2.156¢/ kWh fuel factor and the revenues that were actually collected under the 1.775¢/ kWh factor, witness Maness’ “ theory” being that the difference between the fuel factors applied to 24
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sales from October 1, 2005, through March 31, 2006, is $ 60 million. Witness Barkley stated that this is not correct because actual under- recoveries fluctuate monthly and the portion of the Sub 889 EMF associated with the Sub 868 under- recoveries does not require a “ hypothetical” calculation. Rather, witness Barkley believed that the amount of the Sub 868 under- recovery collected through the Sub 889 EMF should be taken directly from Barkley Rebuttal Exhibit No. 1 ( which is itself derived from Barkley Exhibit No. 6 in Sub 889), which shows an under- recovery of fuel costs related to Sub 868 during the period October 1, 2005, through March 31, 2006, of approximately $ 26 million. Witness Barkley stated that Barkley Exhibit I makes it clear that “ only $ 26 million of the $ 178 million being recovered in the Sub 889 EMF pertains to Sub 868.”
Witness Barkley also presented a table to compare the positions of PEC and the Public Staff regarding the amount of the Sub 889 EMF associated with the Sub 868 under- recovery to illustrate why, in his view, PEC has correctly calculated interest. According to witness Barkley, this table shows that the difference between the PEC and Public Staff positions ($ 34 million) is the result of subtracting the $ 26 million supported by Barkley Rebuttal Exhibit No. 1 from the $ 60 million calculated by witness Maness. Witness Barkley stated that, since the $ 178 million undercollection approved by the Commission for the EMF approved in Sub 889 remains the same under the two positions, it is logical to assume that the $ 34 million undercollection added to the Sub 868 amount by witness Maness would be deducted from the Sub 851 amount, and maintained that it is inappropriate to adjust that $ 139 million amount downward since it was approved in Sub 889 as shown on Barkley Rebuttal Exhibit 1. Witness Barkley then stated that witness Maness’ adjustment, which he called a “ hypothetical reconfiguration of the EMF,” has the effect of accelerating the repayment of PEC’s under- recovery in Sub 868 and represents the transfer of $ 34 million collected in a non- interest bearing docket ( Sub 851) to reduce an obligation owed to PEC in an interest bearing docket ( Sub 868).
In considering this issue, the Commission notes at the outset that the Settlement Agreements were entered and submitted for approval by both PEC and the Public Staff in Docket Nos. E- 2, Sub 868 and Sub 889. Having entered and submitted Settlement Agreements, these parties now disagree as to how the interest provisions of those Settlement Agreements should be implemented. The Commission is now placed in the position of deciding this issue, which ultimately depends upon the appropriate construction to be placed upon the relevant language in the Sub 868 Settlement Agreement as approved by the Commission. Although the Commission very much appreciates PEC’s decision to mitigate the impact of recent increases in fuel costs upon customers through the mechanisms incorporated into these Settlement Agreements, the issue which the Commission must confront in this proceeding is the manner in which the relevant provisions of the Sub 868 Settlement Agreement should be construed.
The Commission has carefully considered the testimony and exhibit of Public Staff witness Maness and the rebuttal testimony and exhibits of Company witness Barkley in its evaluation of this complex issue. After carefully examining the testimony of the two witnesses, it is clear that their calculations attempt to make two different determinations. On the one hand, the calculation presented by Company witness Barkley attempts to measure the difference between fuel- related revenues and fuel expenses during the relevant recovery period. On the other hand, the calculation presented by Public Staff witness Maness attempts to determine the
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difference in fuel- related revenues that would have been recouped had the Commission adjusted the base fuel factor by 0.499¢/ kWh instead of by the 0.880¢/ kWh figure that the record would have supported in the absence of the Sub 868 Settlement Agreement. In other words, the Commission concludes that both the calculation sponsored by PEC witness Barkley and Public Staff witness Maness simply attempt to measure different things. As a result, the ultimate issue before the Commission in this proceeding is whether, under the Sub 868 Settlement Agreement as approved in the Commission’s Order in that proceeding, interest should be calculated based on a principal amount consisting of the total fuel cost under- recovery that resulted from the Commission’s decision in that proceeding or the difference between the fuel adjustment that would have been approved in the absence of the Sub 868 Settlement Agreement and the fuel factor adjustment that resulted from approval of that Settlement Agreement.
The appropriate manner in which to resolve this issue requires a determination of which proposed interest calculation methodology is more consistent with the language of the Sub 868 Settlement Agreement. Paragraph No. 3 of this Settlement Agreement is the pertinent provision. It reads as follows:
PEC shall be allowed to charge and collect interest at the rate of 6%, compounded annually, on under recovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, as a result of having adjusted the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding gross receipts tax, as proposed in its Application, until all such costs have been recovered.
The appropriate reading of this provision is that the “ under recovery of fuel costs” on which interest is to be calculated is the under- recovery specifically caused by the 0.381¢/ kWh difference between ( 1) the base fuel factor increment that was agreed upon in the Settlement Agreement and ultimately approved by the Commission ( 0.499¢/ kWh) and ( 2) the base fuel factor increment that would have been approved by the Commission in the absence of the Settlement Agreement ( 0.880¢/ kWh). The Commission reaches this conclusion based on the literal language of the relevant provision of the Sub 868 Settlement Agreement, which indicates that the amount upon which the interest calculation should be based is the under- recovery that “ results” from the decision to adjust PEC’s base fuel factor “ by 0.499 cents per kWh instead of 0.880 cents per kWh . . . .” In other words, the under- recovery that the relevant Settlement Agreement provision addresses is caused by a difference in fuel revenues, i. e., the difference between revenues resulting from charging one fuel factor ( the one approved pursuant to the Settlement) instead of another ( the one that would have been approved absent the Settlement). It is not the same under- recovery as that measured by the difference between fuel revenues and fuel costs for the purpose of calculating the EMF pursuant to Commission Rule R8- 55( c)( 2). Adoption of a reading that treats the relevant under- recovery as that measured by the difference between fuel- related revenues and fuel costs would also make the reference to a 0.880¢/ kWh fuel adjustment contained in the relevant provision of the Sub 868 Settlement Agreement superfluous, since that figure would have no impact on the interest calculation in the event that the Commission were to determine that the interest calculation should be based on the difference between fuel- related revenues and fuel costs.
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The Commission’s interpretation of the interest provisions of the Sub 868 Settlement Agreement is also consistent with the provisions of the Commission’s decision in Docket No. E- 2, Sub 889. In that proceeding, the Settlement Agreement approved by the Commission provided, in pertinent part, that:
PEC shall be allowed to charge and collect 6% interest on an amount equal to the under- recovery resulting from PEC agreeing to a total fuel factor of 2.550 cents per kWh in the 2006 case rather than a total factor of 2.856 cents per kWh ( exclusive of gross receipts tax) until all such costs have been recovered.
In its Order approving the Sub 889 Settlement Agreement, the Commission stated that this language allowed PEC “ to accrue 6% interest on an amount equal to the difference between 2.550¢/ kWh and 2.856 ¢/ kWh applied to service rendered between October 1, 2006 and September 30, 2007 . . . .“ As a result, the Commission’s language with respect to the interest issue in its Order in Docket No. E- 2, Sub 889 focuses on the difference between the fuel- related revenues that PEC actually received and the fuel- related revenues that PEC would have received had the Commission established a fuel factor at the level supported by the record evidence instead of approving the Settlement Agreement. It is unlikely that the Commission would have intended to approve different methods for calculating allowable interest under the Sub 868 and Sub 889 Settlement Agreements. Thus, the construction of the Sub 889 Settlement Agreement adopted in the Commission’s Order in Docket No. E- 2, Sub 889, while not conclusive, provides strong support for our conclusion that the approach on which the Public Staff’s calculation of the appropriate interest amount is allegedly based is more consistent with the Sub 868 Settlement Agreement than that proposed by PEC.
Furthermore, the construction of the Sub 868 Settlement Agreement adopted by the Commission in this proceeding is fully consistent with the underlying justification for allowing the accumulation of interest on a part of the Sub 868 under- recovery. The Commission’s Order in Docket No. E- 2, Sub 868 approved the accrual of interest “ because PEC is foregoing revenues that it is otherwise entitled to collect in rates during the upcoming year” and because taking that action “ is necessary . . . in order to make PEC whole.” In other words, the interest provisions of the Sub 868 Settlement Agreement were intended to put PEC in the same position that it would have occupied had the fuel adjustment approved in that proceeding been established in accordance with the record evidence.
According to Commission Rule R8- 55, interest is not generally allowed to be accumulated on fuel cost under- recoveries. As a result, had the fuel adjustment approved for PEC in Docket No. E- 2, Sub 868 been set at 0.880¢/ kWh rather than 0.499 ¢/ kWh, the Company would not have been allowed to accumulate interest on the amount of any resulting under- recovery. In this instance, however, PEC agreed to a smaller fuel adjustment than was supported by the record evidence, a result which would inevitably produce a larger under- recovery than would have existed had the Company’s level of fuel expense been set at the higher level. Allowing interest on the amount of the additional or incremental under- recovery resulting from the use of a 0.499¢/ kWh fuel adjustment as compared to a 0.880¢/ kWh fuel adjustment places PEC in the same position it would have occupied had the fuel component of its rates been 27
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
established at a level consistent with that supported by the record evidence ( assuming that the stipulated interest rate is appropriate, an issue about which there was no apparent disagreement among the parties). Computing interest on the basis of the difference between the amount of fuel- related revenues and fuel costs resulting from the fuel adjustment ultimately approved by the Commission does not produce a similarly consistent result. Thus, construing the Sub 868 Settlement Agreement in the manner determined to be appropriate by the Commission is consistent with the entire reason that PEC was allowed to recover interest under that agreement.
As a result, because the calculation of the principal amount upon which the interest resulting from the Sub 868 Settlement Agreement is appropriately based on differences in fuel revenues caused by the differences in base fuel factors resulting from the Settlement Agreement, the Commission concludes that it is necessary to compare the fuel revenues generated by the fuel adjustment that was actually approved in Docket No. E- 2, Sub 868 and the fuel factor that would have been approved if the Settlement had not occurred. Put another way, under the appropriate construction of the Sub 868 Settlement Agreement, it is the difference between the use of these two factors that determines the impact of the Settlement on the interest calculation. As a result, the Commission must now turn to the calculations proposed by the Company and the Public Staff to determine which one, if either, is consistent with the method that the Commission has determined to be appropriate. In view of the fact that the calculation proposed by the Company is not based on the construction of the Settlement Agreement that the Commission has found to be appropriate, the Commission cannot base its decision with respect to the interest calculation issue on the approach recommended by PEC witness Barkley. On the other hand, after careful review, the Commission concludes that the calculation recommended by Public Staff witness Maness follows the appropriate path. This can be determined not only through a review of witness Maness’ testimony, but also through a close review of his calculation, which is set forth on Maness Exhibit I, Schedule 2.
An examination of Maness Exhibit I, Schedule 2, reveals that it is divided into three sections. The first section, page 1, is entitled “ With Settlement.” Through examination of the line and row headings, as well as the footnotes to the Schedule, it is clear that this section calculates the net cash flow related to base fuel factor revenues, fuel costs, and the EMF for the period October 2005 through March 2007. The second section, page 2, is entitled “ Without Settlement.” This section calculates the net cash flow assuming that the Sub 868 and 889 base fuel factors, as well as the EMF, were set at the amounts that would have been approved by the Commission absent the Settlement Agreements in both those cases. The third section, page 3, entitled “ Interest Calculation,” takes the differences between the monthly cash flows calculated in sections one and two and calculates interest on them. The Commission notes that the only external input that differs between sections one and two is the fuel revenue factor; thus, the difference between the cash flow results in each of the two sections is driven entirely by differences in fuel revenue, not fuel cost. The Commission also notes that the base fuel revenue factors used in each section are, respectively, the factors that were approved as a result of the Settlement Agreements and those that would have been approved absent the Settlements.
The Commission has carefully followed how witness Maness calculated the EMFs used in his Exhibit I, Schedule 2 ��� the EMF assuming the existence of the Sub 868 Settlement, set forth on page 1, column ( g), and the EMF assuming no Sub 868 Settlement, set forth on page 2,
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column ( o). Footnote 6 on page 1 and footnote 11 on page 2 indicate that in both cases the EMF was determined by dividing the undercollection in each section as of March 2006, the end of the Sub 889 test year, by estimated North Carolina retail MWh sales, just as was done in the Sub 889 proceeding. Thus, it is clear that the EMFs were calculated using a net fuel cost undercollection that was determined in accordance with the assumption underlying the respective sections, i. e., with and without the Settlement. Moreover, as described previously, the only factor driving the differences in the Sub 868- related undercollections in each section, and thus the calculated EMFs, was the difference in the fuel revenue factor caused by the Sub 868 Settlement. Finally, as witness Maness testified, and as a matter of mathematics, the Settlement- related under- recovery built up during the initial collection period will be exactly offset by the Settlement- related true- up measured by the difference between the alternative EMFs ( subject to differences in the amount of kWh sales billed during the period each rate is in effect). Thus, by the date the Rule R8- 55( c)( 2) fuel cost undercollection is trued- up through twelve months of billing of an approved EMF, the Settlement- related under- recovery will also be trued- up. In the case of the Sub 868 Settlement- related under- recovery, that date will be September 30, 2007. Thus, under the approach advocated by Public Staff witness Maness, the entire Settlement- related under- recovery will be recouped from ratepayers over the relevant collection period.
The interest calculation set forth on Maness Exhibit I, Schedule 2, thus fulfills the two interrelated requirements that the Commission has concluded must be met for the interest calculation to appropriately measure the impact of the Settlements. First, it calculates interest on the basis of the difference between the cash flows that occurred due to the Settlements and those that would have occurred absent the Settlements. Second, the Settlement- related under- recovery is determined solely by the differences in fuel revenue occurring due to the Settlements. In fact, the mathematics of witness Maness’ schedule show that if the fuel cost ( expense) factors were to be removed from the schedule entirely, the resulting interest amount of $ 8,217,000 would not change. For these reasons, the Commission concludes that the methodology used by witness Maness is consistent with the Commission’s construction of the Sub 868 Settlement Agreement and that his recommended interest amount of $ 8,217,000 is appropriate for use in this proceeding.
Witness Barkley’s assertion that witness Maness’ method takes a portion of the Sub 889 EMF calculation related to Docket No. E- 2, Sub 851 and reassigns it to the Sub 868- related portion of that calculation does not persuade the Commission to adopt the Company’s recommended approach to determining the appropriate amount of interest to include under the Sub 868 Settlement Agreement. As witness Maness testified, and as Maness Exhibit I, Schedule 2, page 2, indicates, what witness Maness did was to recalculate the Sub 889 EMF as if the Sub 868 Settlement Agreement had not taken place. The result of such a calculation is that the Sub 868- related portion of the overall Sub 889 EMF calculation would have changed from an under- recovery of $ 26 million to an over- recovery of $ 34 million, a net change of $ 60 million. The Commission concludes that there was no “ taking” from Sub 851. As witness Maness stated, his calculation did not “ involve the Sub 851 numbers at all.”
In summary, based on the evidence presented in this case, and the records in Subs 868 and 889, the Commission finds that the Public Staff’s methodology for calculating interest reflects an appropriate reading of the Sub 868 Settlement Agreement, uses actual data to
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determine PEC’s net cash flows and captures the differences in timing of fuel cost recovery with and without the Settlement Agreement, and is applied consistently throughout the period October 2005 through March 2007. The Public Staff’s methodology also accomplishes exactly the purpose for which these types of interest accruals are designed: it puts the Company in the same financial position that it would have been in had the Settlement Agreement not been proposed and approved. The Commission, therefore, finds and concludes that it is appropriate to increase this fuel expense under- recovery by $ 8,217,000 to reflect interest through March 31, 2007, related to the Settlement Agreements approved in Docket No. E- 2, Subs 868 and 889.
Thus, the Commission finds and concludes that PEC’s under- recovery of prudently incurred fuel costs appropriate for recovery in this proceeding is $ 144,188,836, and the corresponding EMF to which PEC is entitled is 0.387 ¢/ kWh, exclusive of gross receipts tax. Pursuant to Ordering Paragraph No. 3 of the Commission’s September 25, 2006 Order in Docket No. E- 2, Sub 889, the Commission therefore finds that the base fuel factor should be 2.288¢/ kWh.
At this point herein, the Commission notes that CUCA filed a brief and motion for reconsideration pursuant to G. S. 62- 80, in both Docket No. E- 2, Sub 889 and in this Docket, on September 4, 2007. PEC filed a response to CUCA’s motion on September 6, 2007.
The Commission has issued a separate order in Docket No. E- 2, Sub 889 addressing CUCA’s motion for reconsideration of the Commission Order dated September 25, 2006, in Docket No. E- 2, Sub 889. However, in its filing, CUCA also includes the following alternative requests for relief:
Even if the Commission declines to reconsider the 2006 Order, the Commission should either: ( i) clarify the terms of the Settlement Agreement to specify that PEC shall not accrue interest upon the difference between the fuel factor computed in accordance with Settlement Agreement to go into effect October 1, 2007, 2.287 cents per kWh, and the fuel factor that PEC computed in accordance with its past procedures and set forth in Barkley Exhibit 5A, 2.358 cents per kWh; or ( ii) conclude that the 2.287 cents per kWh is the reasonable fuel factor independent of the Settlement Agreement and in contravention of Barkley Exhibit 5A, which would prevent the accrual of interest even if such accrual is permitted by the Settlement Agreement because there would be no differential between the reasonable rate and the rate to be implemented in accordance with the Settlement Agreement.
In its response, PEC states that CUCA did not present any witness to address the issues raised in its brief, but rather simply asked a few questions on cross- examination related to these matters. PEC argues that simply asking a witness a question on cross- examination does not properly raise an issue for resolution by the Commission and that the arguments in CUCA’s brief are not ripe for consideration.
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The Commission rejects CUCA’s alternative requests. The request by CUCA to clarify the interest provision of the Settlement Agreement is not ripe for decision, but not for the reason argued by PEC. This request is premature because PEC is not attempting to recover in rates any interest on the difference between the 2.287¢/ kWh factor and the 2.358¢/ kWh factor at this time. Such a request may be an issue in PEC’s next fuel case, but no such request is before the Commission now. The request by CUCA to approve the 2.287¢/ kWh base fuel factor as the reasonable fuel factor, independent of the Settlement Agreement, is contrary to the evidence in this case that PEC would be entitled to a base fuel factor equal to 2.358¢/ kWh, absent the Settlement Agreement.
IT IS, THEREFORE, ORDERED as follows:
1. That, effective for service rendered on and after October 1, 2007, PEC shall adjust the base fuel component in its North Carolina retail rates by an increment of 1.012¢/ kWh ( 1.046¢/ kWh including gross receipts tax) above the base fuel component approved in Docket No. E- 2, Sub 537, and said increment shall remain in effect until changed by a subsequent order of the Commission in a general rate case or fuel case;
2. That PEC shall establish an EMF Rider as described herein to reflect an increment of 0.387¢/ kWh ( 0.400¢/ kWh including gross receipts tax) for retail rate schedules and applicable riders, and this Rider is to remain in effect for a 12- month period beginning October 1, 2007, and expiring on September 30, 2008;
3. That PEC shall file appropriate rate schedules and riders with the Commission in order to implement the fuel charge adjustment approved herein not later than seven ( 7) working days from the date of this Order; and
4. That PEC shall notify its North Carolina retail customers of the fuel charge adjustments approved herein by including the customer notice attached as Appendix A as a bill message to be included on bills rendered during the Company’s next normal billing cycle following the effective date of this Order.
ISSUED BY ORDER OF THE COMMISSION.
This the 25th day of September 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
Ah092507.05
Chairman Edward S. Finley, Jr. concurs in part and dissents in part.
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APPENDIX A
PEC BILL MESSAGE
The North Carolina Utilities Commission issued an Order on September 24, 2007, after public hearings and review, approving a fuel charge increase of approximately $ 48 million in the rates and charges paid by North Carolina retail customers of Progress Energy Carolinas, Inc. The rate increase will be effective for service rendered on and after October 1, 2007, and will result in a monthly rate increase of $ 1.30 for a typical customer using 1,000 kWh per month.
DOCKET NO. E- 2, SUB 903
CHAIRMAN EDWARD S. FINLEY, JR., dissenting in part:
In its September 26, 2005 Order in Docket No. E- 2, Sub 868, the Commission approved a base fuel factor of 1.775 cents/ kWh for PEC for recovery of fuel costs during the upcoming twelve- month period, October 1, 2005 through September 30, 2006. The undisputed evidence before the Commission was that PEC would have been justified in charging a base fuel factor of 2.156 cents/ kWh as authorized by G. S. 62- 133.2 and NCUC Rule R8- 55. PEC, however, had entered into a settlement agreement with intervenors in the case under which PEC agreed voluntarily to forego the revenues to which it otherwise would have been entitled had it employed the 2.156 cents/ kWh. The effect of the Settlement Agreement and the Commission’s approval of it was that PEC forewent millions of dollars in recovery of fuel costs within the upcoming twelve months and that its ratepayers enjoyed a deferral of their responsibility fully to reimburse PEC for those costs until as late as September 30, 2008. The purpose of the settlement was to spare ratepayers the financial burden of a rather precipitous increase in their rates. “[ The settlement agreement] significantly mitigates the near term impact to PEC’s customers of increasing cost of coal, natural gas, and rail transportation, and the Commission believes adopting the Agreement is in the public interest.”
The Commission, in recognition of PEC’s willingness to forego recovery of the fuel costs within the upcoming twelve month period, in the September 26, 2005 Order, authorized PEC to receive interest on the fuel cost underrecovery.
As the Commission stated:
In recognition of the fact that a base fuel factor of 1.775 cents/ kWh will, in all probability, cause PEC to significantly underrecover its fuel costs during the time period that the rates will be in effect, the Agreement provides that PEC shall be allowed to charge and collect interest at a rate of 6%, compounded annually on any underrecovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, that results from increasing the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding
32
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
gross receipts tax, as proposed in its Application, until all such costs have been recovered. 1
PEC, in accordance with the Commission’s Order, charged only the 1.775 cents/ kWh each month on retail MWh sales for the twelve- month period October 2005 through September 2006.
In PEC’s 2006 fuel docket, E- 2, Sub 889, the Commission approved an EMF of 0.490 cents/ kWh. The EMF is a mechanism through which PEC collects the fuel cost underrecoveries experienced in the historical test year. G. S. 62- 133.2( d) requires the Commission to incorporate in its fuel cost determination “ the experienced over- recovery or under- recovery of reasonable fuel expenses prudently incurred during the test period. . . . and the over- recovery or under- recovery portion of the increment or decrement shall be reflected in rates for 12 months. . . .” NCUC Rule R8- 55( c)( 2) provides that the “ EMF rider will reflect the difference between reasonable and prudently incurred fuel cost and fuel related revenues that were actually realized during the test period under the fuel cost component of rates then in effect.” Thus, the Sub 889 EMF was established to allow reimbursement resulting from PEC’s assessing a 1.775 cents/ kWh base fuel factor instead of 2.156 cents/ kWh for the twelve month period ended September 30, 2006, as well as other test year underrecovered fuel costs. The 0.490 cents/ kWh EMF approved in Sub 889 went into effect October 1, 2006. The historical test period upon which the Sub 889 rates were based was the twelve- month period April 1, 2005 through March 31, 2006. Consequently, PEC assessed the 1.775 cent/ kWh only during the six month period October 2005 through March 2006 of the Sub 889 test period. The undisputed evidence in this docket is that PEC’s actual fuel expense during the October 2005 through March 2006 six months period exceeded PEC’s actual revenues arising from its assessing the 1.775 cents/ kWh by $ 26 million. This underrecovery was set forth in the evidence in Sub 889 in Barkley Ex. No. 6 lines 8- 13. This was the evidence the Commission had before it in Sub 889 when it established the 0.490 cents/ kWh EMF to enable PEC to recover past unrecovered fuel expense in the upcoming twelve- month period, October 2006 through September 2007.
The question before the Commission in this docket for purposes of determining interest is how much of the October 2005 through March 2006 fuel cost underrecovery arising because PEC assessed 1.775 cents/ kWh instead of 2.156 cents/ kWh was reimbursed between October 1, 2006 through September 30, 2007 through PEC’s assessment of the Sub 889 0.490 cents/ kWh EMF. PEC argues that PEC’s fuel expense during the six months exceeded PEC’s fuel recovery revenues by $ 26 million, so the 0.490 EMF cents/ kWh effectively only reduced the underrecovery by $ 26 million. The Public Staff argues that this $ 26 million reimbursed through the Sub 889 EMF should be increased by $ 34 million ( to $ 60 million) to recognize the difference in cash flows during the six month period from those PEC actually experienced by assessing the 1.775 cents/ kWh and those PEC would have experienced if no settlement had been reached and PEC had assessed the 2.156 cents/ kWh. The Public Staff’s method reduced the underrecovery more, thus resulting in $ 190,000 less in interest expense in this case. The Public Staff’s method will result in PEC’s receiving millions of dollars less in interest expense in succeeding cases. Under the Public Staff approach PEC had not only an actual $ 26 million underrecovery of fuel
1 The base fuel factor the Commission approved for PEC in PEC’s 2004 fuel docket, E- 2, Sub 784, was 1.276 cents/ kWh. Increasing 1.276 cents/ kWh by 0.499 cents/ kWh equals 1.775 cents/ kWh. Had the 1.276 cents/ kWh been increased by 0.880 cents/ kWh, the factor would have been 2.156 cents/ kWh.
33
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
costs, but also had a $ 34 million loss of foregone revenues during the six months because PEC charged 1.775 cents/ kWh instead of 2.156 cents/ kWh.
No Settlement Agreement provision or provisions in any Commission order expressly addresses the formula that PEC should use to calculate the appropriate interest. Nevertheless, the Commission’s September 26, 2005 Order authorizes interest on “ underrecovery of fuel costs.” The Order makes no reference to foregone revenue cash flows. In addition, G. S. 62- 133.2( d) dictates that the EMF should true up “ experienced underrecovery” of fuel expense “ incurred during the test period.” Rule R8- 55( c)( 2) defines the EMF as the difference between fuel cost and fuel related revenues actually realized during the test period. In spite of this, the proposal for calculating interest advocated by the Public Staff adds to the actual October 2005 through March 2006 underrecovery between fuel revenues received and fuel expenses incurred reimbursed through the EMF “ cash flows” that PEC “ would have” received “ if” PEC had charged 2.156/ kWh. In my view this flies in the face of the letter and the intent of the Settlement Agreement authorizing interest, the Commission’s Order approving it, and the express terms of G. S. 62- 133.2( d) and NCUC Rule R8- 55( c)( 2). As I read the Settlement Agreement and the Commission’s order, PEC is to receive interest on its underrecovery of fuel costs during the period the 1.775 cents/ kWh factor was in effect. The effect of the settlement was that PEC forewent revenues for the recovery of fuel costs during this period that the evidence justified, so that ratepayers would have lower rates. In recognition of this concession, PEC was to receive interest on the “ fuel cost underrecovery” experienced while the 1.775 cents/ kWh was in effect. I find no suggestion in the Settlement Agreement or any Commission order that the interest calculated during the fuel cost underrecovery period is to be offset by any hypothetical foregone revenue cash flows. 1 Indeed, my reading of the Order suggests just the opposite. This is especially so because the statute and rule are written in terms of “ underrecovery of fuel expense” and the “ difference between incurred fuel costs and fuel related revenues actually realized during the test period.”
Calculating interest in the manner advocated by the Public Staff and adopted by the majority two years after the fact through reliance on hypothetical foregone revenue cash flows inequitably deprives PEC, the party to the settlement that relinquished its rights, in favor of ratepayers, the party that benefited by the settlement’s fundamental terms. What the Commission authorized in the September 26, 2005 Order by approving interest on unrecovered fuel costs until “ all such costs have been recovered,” the Commission is significantly taking back by attributing to PEC fuel cost recovery that the 0.490 cents/ kWh EMF simply did not reimburse. If interest was to be calculated by attributing to PEC foregone revenue cash flows instead of actual fuel cost recovery in contradiction of what the statue and rule require, this should have been spelled out two years ago. PEC obviously has been deprived of the bargain it legitimately felt it had reached, and will not receive interest on the actual fuel costs
1Q. I may have misunderstood both of you which is why I am looking for some help. Why do you feel that Mr. Barkley’s description of your calculation involved a misapprehension of some nature?
A. ( Public Staff witness Maness) First of all, he speaks several times to my calculation as being a hypothetical calculation. I agree that one of the situations I used, the series of cash flows that would have occurred if the settlement had not been in effect is a hypothetical situation, but there is nothing hypothetical about the calculation. . . .
Tr. p. 95. 34
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
underrecovery it experienced while the 1.775 cents/ kWh factor was in effect. This is not the type of evenhanded regulatory treatment parties regulated by the Commission should receive.
The Public Staff, and the majority, which adopts the Public Staff position, places great reliance on the phrase “ as a result of having adjusted the base fuel factor by 0.499 cents/ kWh instead of 0.880 cents/ kWh.” This reliance is misplaced and unpersuasive. The phrase helps address the “ what” and the “ why” questions but not the “ how” question, which is the question at issue. The phrase addresses the fact that interest will be paid on the under- recovery of fuel costs ( the what) because the Commission approves a base fuel factor of 1.775 cents/ kWh instead of 2.156 cents/ kWh ( the why), but says nothing about the formula to be used in calculating the amount of interest ( the how).
The operative language from the September 26, 2005 order, after all, comes without significant modification from a joint proposed order submitted by PEC and the Public Staff on September 6, 2005. PEC and the Public Staff, the authors of the language, have come to no agreement on its intended meaning. For the majority to conclude two years later that the Commission, that authored nothing, intended for this language to mean that interest should be calculated through reliance on hypothetical cash flows simply defies credibility.
More importantly, the best indication of intent is the interpretation the parties and the Commission followed in Docket No. E- 2, Sub 889 in 2006. When the parties agreed upon and the Commission authorized the 0.490 cents/ kWh EMF in that docket, the EMF was established through reliance on the undisputed evidence in that case, Barkley Ex. No. 6, lines 8- 13, to permit reimbursement of only $ 26 million of the underrecovery from assessing the 1.775 cents/ kWh during the Sub 889 test year, not $ 60 million. The 0.490 cents/ kWh has as its essential component, for purposes of the dispute in this case, a factor to reimburse only $ 26 million. Not only is it unfair and in contradiction of the ruling made in Sub 889 to in today’s order modify that factor, to do so violates G. S. 62- 133.2 requirements that the EMF reimburse only experienced underrecovery during the historical test year.
G. S. 62- 133.2 is structured so that the EMF only allows PEC to obtain reimbursement for fuel cost underrecovery experienced in the historical twelve- month test period. The statute prohibits PEC from increasing the EMF to permit reimbursement of fuel cost underrecovery PEC experiences before the beginning or after the close of the historical test period. Yet the method for calculation of interest advanced by the Public Staff does just that— the method attributes to PEC fuel costs reimbursement that actually occurred before April 1, 2005, or after March 31, 2006.
The justification the Public Staff advances in support of its calculation is that it is theoretically superior to PEC’s. The Public Staff asserts that “ the Company’s method essentially switches from using the differences in cash flows under each scenario to using the cash flow related to the with- agreement scenario. Second, it is clear that due to the overall operation of the fuel clause, specifically the true up provision, the $ 60 million lower cash flow during the initial Sub 868 collection period must be offset by an equally higher cash flow over the course of the Sub 868 true- up period”. In particular Public Staff witness Maness asserts, “ Contrastingly, the Company’s approach reduced the Sub 868- related principal balance during the same period by only approximately $ 12 million ( about six months’ worth of its $ 26 million). Thus, the
35
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
Company reduced the principal balance for that period by an amount that is disproportionately lower than the amount indicated by the relevant cash flows.”
This criticism is invalid and erroneous. PEC determines the Sub 889 test year underrecovery from assessing the 1.775 cents/ kWh to be $ 26 million. PEC determines that the 0.490 Sub 889 EMF reimbursed PEC $ 12 million or six months of the $ 26 million underrecovery during the first six months the Sub 889 rates were in effect. The reason for this is obvious. The 1.775 cents/ kWh was in effect for only six months of the Sub 889 test year. However, the 0.490 cents/ kWh was in effect for the entire twelve months that the Sub 889 rates were in effect. The percentage of the 0.490 cents/ kWh used to reimburse PEC for the underrecovery arising from employment of the 1.775 cents/ kWh remains uniform each month of the period the Sub 889 rates are in effect. Therefore only six months of the $ 26 million, or $ 12 million, is reimbursed in the first six months. The remainder will be reimbursed in months seven through twelve.
The Public Staff’s calculations are subject to the same Public Staff criticism. The Public Staff maintains that Sub 889 test year underrecovery is $ 60 million. Yet the Public Staff asserts that $ 27 million was reimbursed through the first six months of the period rates approved in Sub 889 were in effect. This is approximately the same percentage of reimbursement to underrecovery as the percentage PEC’s numbers produce.
\ s\ Edward S. Finley, Jr.
Chairman Edward S. Finley, Jr.
DOCKET NO. E- 2, SUB 903
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Application of Carolina Power & Light Company d/ b/ a Progress Energy Carolinas, Inc. for Authority to Adjust its Electric Rates Pursuant to G. S. 62- 133.2 and NCUC Rule R8- 55
)
)
)
)
)
ERRATA ORDER
BY THE CHAIRMAN: On September 25, 2007, the Commission issued an Order Approving Fuel Charge Adjustment in this proceeding. Appendix A attached to the Order contains a typographical err

NINETY- SEVENTH REPORT
OF THE
NORTH CAROLINA
UTILITIES COMMISSION
ORDERS AND DECISIONS
ISSUED FROM
JANUARY 1, 2007 THROUGH DECEMBER 31, 2007
NINETY- SEVENTH REPORT
of the
NORTH CAROLINA UTILITIES COMMISSION
ORDERS AND DECISIONS
Issued from
January 1, 2007, through December 31, 2007
Edward S. Finley, Jr., Chairman
Robert V. Owens, Jr., Commissioner
Sam J. Ervin, IV, Commissioner
Lorinzo L. Joyner, Commissioner
James Y. Kerr, II, Commissioner
Howard N. Lee, Commissioner
William T. Culpepper, III, Commissioner
North Carolina Utilities Commission
Office of the Chief Clerk
Ms. Renné Vance
4325 Mail Service Center
Raleigh, North Carolina 27699- 4325
The Statistical and Analytical Report of the North Carolina Utilities Commission is printed separately from the volume of Orders and Decisions and will be available from the Office of the Chief Clerk of the North Carolina Utilities Commission upon order.
LETTER OF TRANSMITTAL
December 31, 2007
The Governor of North Carolina
Raleigh, North Carolina
Sir:
Pursuant to the provisions of Section 62- 17( b) of the General Statutes of North Carolina, providing for the annual publication of the final decisions of the Utilities Commission on and after January 1, 2007, we hereby present for your consideration the report of the Commission's significant decisions for the 12- month period beginning January 1, 2007, and ending December 31, 2007.
The additional report provided under G. S. 62- 17( a), comprising the statistical and analytical report of the Commission, is printed separately from this volume and will be transmitted immediately upon completion of printing.
Respectfully submitted,
NORTH CAROLINA UTILITIES COMMISSION
Edward S. Finley, Jr., Chairman
Robert V. Owens, Jr., Commissioner
Sam J. Ervin, IV, Commissioner
Lorinzo L. Joyner, Commissioner
James Y. Kerr, II, Commissioner
Howard N. Lee, Commissioner
William T. Culpepper, III, Commissioner
Renné Vance, Chief Clerk
TABLE OF CONTENTS
TABLE OF ORDERS AND DECISIONS PRINTED.................................................................... i
GENERAL ORDERS..................................................................................................................... 1
GENERAL ORDERS -- TELECOMMUNICATIONS............................................................. 1
P- 100, SUB 110 ( 12/ 13/ 2007)............................................................................................. 1
P- 100, SUB 110 ( 12/ 14/ 2007)............................................................................................. 6
P- 100, SUB 133f ( 09/ 05/ 2007)........................................................................................... 7
ELECTRIC....................................................................................................................... ........... 13
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES........................................................ 13
E- 2, SUB 903 ( 09/ 25/ 2007).............................................................................................. 13
E- 2, SUB 903 ( 09/ 26/ 2007).............................................................................................. 36
E- 22, SUB 444 ( 12/ 20/ 2007)............................................................................................ 37
ELECTRIC -- ELECTRIC GENERATION CERTIFICATE................................................ 52
E- 7, SUB 790 ( 03/ 21/ 2007) ............................................................................................. 52
ELECTRIC -- FILINGS DUE PER ORDER OR RULE....................................................... 85
E- 7, SUB 751 ( 02/ 06/ 2007).............................................................................................. 85
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 ( 12/ 20/ 2007).............. 101
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 ( 12/ 21/ 2007).............. 175
ELECTRIC -- RATE SCHEDULES/ RIDERS/ SERVICE RULES..................................... 177
E- 7, SUB 825 ( 06/ 21/ 2007)............................................................................................ 177
NATURAL GAS ....................................................................................................................... 194
NATURAL GAS -- ADJUSTMENT OF RATES/ CHARGES............................................ 194
G- 9, SUB 528 ( 08/ 01/ 2007)............................................................................................ 194
G- 9, SUB 528 ( 08/ 15/ 2007)............................................................................................ 220
NATURAL GAS -- CONTRACTS/ AGREEMENTS.......................................................... 221
G- 53, SUB 0; E- 65, SUB 0 ( 12/ 20/ 2007)....................................................................... 221
G- 55, SUB 0 ( 12/ 14/ 2007).............................................................................................. 224
NATURAL GAS -- FILINGS DUE PER ORDER OR RULE............................................ 225
G- 5, SUB 300 ( 05/ 22/ 2007)............................................................................................ 225
NATURAL GAS -- MISCELLANEOUS............................................................................ 227
G- 5, SUB 488 ( 10/ 19/ 2007)............................................................................................ 227
G- 40, SUB 66 ( 04/ 19/ 2007)............................................................................................ 235
G- 54, SUB 0 ( 12/ 14/ 2007).............................................................................................. 241
NATURAL GAS -- RATE INCREASE............................................................................... 243
G- 5, SUB 481 ( 05/ 21/ 2007)............................................................................................ 243
G- 39, SUB 10 ( 08/ 17/ 2007)............................................................................................ 247
NATURAL GAS -- REPORTS............................................................................................ 254
G- 9, SUB 542 ( 11/ 19/ 2007)............................................................................................ 254
G- 41, SUB 23 ( 12/ 27/ 2007)............................................................................................ 266 TABLE OF CONTENTS
TELECOMMUNICATIONS...................................................................................................... 272
TELECOMMUNICATIONS -- MISCELLANEOUS.......................................................... 272
P- 19, SUB 277 ( 10/ 26/ 2007).......................................................................................... 272
P- 21, SUB 71; P- 35, SUB 107; P- 61, SUB 95 ( 12/ 20/ 2007)......................................... 274
P- 35, SUB 96 ( 04/ 25/ 2007)............................................................................................ 376
P- 55, SUB 1013 ( 03/ 14/ 2007)........................................................................................ 381
P- 75, SUB 63; P- 76, SUB 53; P- 60, SUB 73 ( 05/ 09/ 2007) .......................................... 398
P- 1262, SUB 2 ( 11/ 26/ 2007).......................................................................................... 407
WATER AND SEWER.............................................................................................................. 416
WATER AND SEWER -- COMPLAINT............................................................................ 416
W- 1143, SUB 8 ( 11/ 28/ 2007)......................................................................................... 416
WATER AND SEWER -- RATE INCREASE.................................................................... 434
W- 354, SUB 297 ( 07/ 05/ 2007)....................................................................................... 434
W- 1236, SUB 2 ( 03/ 21/ 2007)......................................................................................... 460
WATER AND SEWER -- SALE/ TRANSFER.................................................................... 487
W- 218, SUB 245; W- 1101, SUB 3 ( 08/ 20/ 2007)........................................................... 487
RESALE OF WATER AND SEWER........................................................................................ 505
RESALE OF WATER AND SEWER -- SHOW CAUSE................................................... 505
WR- 174, SUB 3; WR- 309, SUB 2 ( 03/ 20/ 2007)........................................................... 505
INDEX OF ORDERS PRINTED............................................................................................... 510
ORDERS AND DECISIONS LISTED...................................................................................... 513
2007 ANNUAL REPORT OF ORDERS AND DECISIONS
OF THE
NORTH CAROLINA UTILITIES COMMISSION
TABLE OF ORDERS AND DECISIONS PRINTED
NOTE: For Printed General Orders, see Index on Page 510
PAGE
Aqua North Carolina, Inc.
W- 218, SUB 245; W- 1101, SUB 3 – Recommended Order Granting Transfer,
Granting Rate Increase, and Requiring Customer Notice ( 08/ 20/ 2007)....................... 487
Barnardsville Telephone Company
P- 75, SUB 63; P- 76, SUB 53; P- 60, SUB 73 – Order Approving Price
Regulation Plan ( 05/ 09/ 2007)....................................................................................... 398
BellSouth Telecommunications, Inc.
P- 55, SUB 1013 – Order Ruling on AT& T’s Request for Reductions
in Free Directory Assistance Allowances ( 03/ 14/ 2007)............................................... 381
Cardinal Pipeline Company, LLC
G- 39, SUB 10– Order Decreasing Rates ( 08/ 17/ 2007)...................................................... 247
Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc.
E- 2, SUB 903 – Order Approving Fuel Charge Adjustment ( 09/ 25/ 2007).......................... 13
E- 2, SUB 903 – Errata Order ( 09/ 26/ 2007).......................................................................... 36
Carolina Water Service, Inc.
W- 354, SUB 297 – Order Granting Partial Rate Increase and Requiring
Customer Notice ( 07/ 05/ 2007)..................................................................................... 434
Dominion North Carolina Power
E- 22, SUB 444 – Order Approving Fuel Charge Adjustment ( 12/ 20/ 2007)........................ 37
Duke Energy Carolinas, LLC
E- 7, SUB 751 – Order on Reconsideration and Approving Offer of
Settlement ( 02/ 06/ 2007).................................................................................................. 85
E- 7, SUB 790 – Order Granting Certificate of Public Convenience and
Necessity with Conditions ( 03/ 21/ 2007)........................................................................ 52
E- 7, SUB 825 – Order Approving Fuel Charge Adjustment ( 06/ 21/ 2007)........................ 177
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 – Order
Approving Stipulation and Deciding Non- Settled Issues ( 12/ 20/ 2007)....................... 101
E- 7, SUB 828; E- 7, SUB 829; E- 100, SUB 112; E- 7, SUB 795 –
Errata Order ( 12/ 21/ 2007)............................................................................................. 175
i
Ellerbe Telephone Company
P- 21, SUB 71; P- 35, SUB 107; P- 61, Sub 95 – Recommended
Arbitration Order ( 12/ 20/ 2007)..................................................................................... 274
Enviracon Utilities, Inc.
W- 1236, SUB 2 – Order Granting Partial Rate Increase ( 03/ 21/ 2007).............................. 460
Frontier Energy, LLC
G- 40, SUB 66 – Order on Annual Review of Gas Cost ( 04/ 19/ 2007)............................... 235
Glen- Tree Investments, LLC
G- 53, SUB 0; E- 65, SUB 0 – Order Approving Master Metering Plan
( 12/ 20/ 2007).................................................................................................................. 221
Insite Residential, LLC
G- 55, SUB 0 – Order Approving Natural Gas Master Metering
( 12/ 14/ 2007).................................................................................................................. 224
MebTel, Inc.
P- 35, SUB 96 – Order Concerning Access Tariff ( 04/ 25/ 2007)......................................... 376
North Topsail Utilities
W- 1143, SUB 8 – Recommended Order Denying Complaint ( 11/ 28/ 2007)...................... 416
Piedmont Natural Gas Company, Inc.
G- 9, SUB 528 – Order on Annual Review of Gas Costs ( 08/ 01/ 2007).............................. 194
G- 9, SUB 528 – Errata Order ( 08/ 15/ 2007)........................................................................ 220
G- 9, SUB 542 – Order on Annual Review of Gas Costs ( 11/ 19/ 2007).............................. 254
Public Service Company of North Carolina, Inc.
G- 5, SUB 300 – Order Dissolving Expansion Fund ( 05/ 22/ 2007)..................................... 225
G- 5, SUB 481 – Order on Reconsideration Amending Order and
Scheduling New Hearing ( 05/ 21/ 2007)........................................................................ 243
G- 5, SUB 488 – Order on Annual Review of Gas Costs ( 10/ 19/ 2007).............................. 227
Strickland Farms General Partnership
WR- 174, SUB 3; WR- 309, SUB 2 – Recommended Order Accepting
Stipulations ( 03/ 20/ 2007)............................................................................................. 505
Time Warner Cable Information Services ( North Carolina), LLC
P- 1262, SUB 2 – Recommended Arbitration Order ( 11/ 26/ 2007)..................................... 407
Toccoa Natural Gas
G- 41, SUB 23 – Order on Annual Review of Gas Costs ( 12/ 27/ 2007).............................. 266
ii
Verizon South, Inc.
P- 19, SUB 277 – Order Approving Alternative Proposal ( 10/ 26/ 2007)............................. 272
West Developers, LLC
G- 54, SUB 0 – Order Approving Natural Gas Metering Plan ( 12/ 14/ 2007)...................... 241
iii
GENERAL ORDERS
GENERAL ORDERS – TELECOMMUNICATIONS
Docket No. P- 100, Sub 110
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Telecommunications Relay Service,
North Carolina
)
)))))
ORDER APPROVING A DECREASE IN THE SURCHARGE, AUTHORIZING BILL MESSAGE/ INSERT NOTIFICATION, AND APPROVING A REVISION TO THE SURCHARGE REMITTANCE FORM
BY THE COMMISSION: On October 12, 2007, the Commission received a petition from the Public Staff seeking, inter alia, to revise the monthly surcharge imposed on all qualified residential and business local exchange facilities ( access lines) 1 in North Carolina to fund the Telecommunications Relay Service ( TRS) and equipment distribution program for the deaf and hard of hearing. Under G. S. 62- 157( b), the Commission requires local service providers to impose a monthly surcharge on qualified access lines to fund a relay service and an equipment distribution program. 2 The relay service and the equipment distribution program comprise Telecommunications Access North Carolina ( TANC). The Commission, after giving notice and an opportunity to be heard to interested parties, sets the amount of the monthly surcharge based on the amount of funding necessary to implement and operate TANC, including a reasonable margin for reserve ( reserve margin). The present monthly surcharge of $ 0.11 per access line went into effect in January 2002.3
In response to the Public Staff’s petition, the Commission issued an Order Seeking Comments on the Surcharge, Approving a Reserve Margin, and Authorizing Review of Reserve Margin and Surcharge Biennially on October 30, 2007. In that order, the Commission approved a $ 9.6 million reserve margin and the regular biennial review of the reserve margin and the surcharge amount, starting in October 2009. It further requested interested parties to this docket to file comments regarding the proposed decrease in the surcharge no later than November 9, 2007.
1 Participants in the Subscriber Line Charge Waiver Program and the Link- up Carolina Program are exempt from imposition of the surcharge under G. S. 62- 157( b).
2 Under G. S. 62- 157( a1)( 5), a “ local service provider” means a local exchange company, a competing local provider, or a telephone membership corporation.
3 In the Matter of Telecommunications Relay Service, Relay North Carolina, Order Authorizing Increase in Surcharge, Docket No. P- 100, Sub 110 ( Nov. 13, 2001).
1
GENERAL ORDERS – TELECOMMUNICATIONS
BACKGROUND
In 2004, Session Law 2003- 341 amended G. S. 62- 157 to require that a similar surcharge be imposed on wireless connections in North Carolina to provide additional funds for an expansion of TANC’s services and to prepare for a potential increase in costs if the Federal Communications Commission ( FCC) required the states’ TRS funds to pay for intrastate video relay services ( VRS) and internet protocol relay services ( IP Relay). For these reasons, a wireless provider now collects the same monthly surcharge on wireless connections that is imposed on access lines and remits it to the Wireless 911 Board. The Wireless 911 Board then remits the surcharges to the appropriate Department of Health and Human Services ( DHHS) fund. The “ access line” fund and the “ wireless connection” fund are separate, but both operate to fund TANC’s services. The $ 0.11 monthly surcharge has been imposed on wireless connections in North Carolina since 2004.
PUBLIC STAFF’S PETITION
In its petition, the Public Staff also requested that the reserve margin be adjusted to reflect the increase in TANC’s services and the potential increase in TANC’s costs if the FCC required states to assume funding for VRS and IP Relay. The Public Staff proposed a $ 9.6 million reserve margin, which reflects $ 3 million to cover TANC’s six months of operating costs, plus $ 1.8 million for TANC’s relay contract expenses for six months and $ 4.8 million for six months of IP Relay and VRS costs.
According to the Public Staff, however, even with the increase in the reserve margin amount, incoming revenue continues to outpace TANC’s expenses significantly. For that reason, the Public Staff proposed to reduce the monthly surcharge from $ 0.11 per access line to $ 0.09 per access line. If the Commission approves this reduction, it will result in the monthly wireless surcharge being similarly reduced from $ 0.11 per wireless connection to $ 0.09 per wireless connection. Based on the Public Staff’s calculations, this reduction would bring the reserve margin to the approved $ 9.6 million in approximately 50 months, accounting for a ten percent increase in TANC’s employee and service expenses. The Public Staff further recommended that the Commission begin a regular biennial review of the reserve margin and surcharge amount in October 2009.
COMMENTS
The Commission received timely filed comments from AT& T North Carolina and AT& T Mobility, jointly, and from the North Carolina Telecommunications Industry Association, Inc. ( NCTIA). All comments supported the proposed decrease in the surcharge. Additionally, NCTIA indicated that it did not object to the decrease becoming effective immediately.
PUBLIC STAFF’S MOTION
In response to the comments in support of the proposed decrease, the Public Staff filed a Motion For An Order Approving A Decrease in the Surcharge, Authorizing Bill Message/ Insert Notification, and Approving a Revision in the Surcharge Remittance Form and proposed order on November 28, 2007. In that motion, the Public Staff requested that the Commission approve the requested decrease in the monthly TRS surcharge effective January 1, 2008, which should allow the
2
GENERAL ORDERS – TELECOMMUNICATIONS
local service providers adequate time to reflect the decrease in their customers’ bills. As it has done in past revisions to the surcharge amount, the Public Staff also requested the Commission to require that local service providers notify their customers of the surcharge decrease by a bill message/ insert in their January bills as set forth in Appendix A.
The Public Staff additionally noted that confusion appears to exist regarding the portion of the monthly surcharge that the Commission has previously allowed local service providers to retain for collection, inquiry, and administrative expenses. Pursuant to the Commission’s February 5, 1991 Order Setting Surcharge and Procedures for Implementation of System and November 13, 2001 Order Authorizing Increase of Surcharge, local service providers are allowed to retain $ 0.01 per access line of each monthly access line surcharge to cover their collection, inquiry and administrative expenses. The confusion arises, however, because Session Law 2003- 341 amended G. S. 62- 157 to allow wireless providers to retain only one percent ( 1%) of the total amount of surcharge collected each month to cover administrative costs. 1 Therefore, the amount retained for administrative costs differs between local service providers and wireless providers.
Moreover, the Public Staff reported that local service providers frequently rely upon billing companies to collect and remit the TRS surcharge. Some of these companies are located out of state and may not be as familiar with differences between the Commission’s orders and the wireless connection provision of G. S. 62- 157. Additionally, certain providers have underestimated the amount that they may retain each month for billing and collection expenses by multiplying the $ 0.01 times the surcharge amount, as opposed to the approved method of multiplying $ 0.01 times the number of access lines. Finally, at the time of the previous change in the surcharge, some companies revised their surcharge amount belatedly. Therefore, the Public Staff attached to its motion a revised remittance form for local service providers, or their billing companies, to use when collecting and remitting the monthly surcharge. The new remittance form clearly shows that local service providers should collect the $ 0.09 TRS surcharge per access line, per month, but remit only $ 0.08 per access line, per month, to the DHHS to fund TANC. They should retain $ 0.01 per access line, per month, for administrative costs.
Finally, the Public Staff also requested in its motion that the Commission approve the use of this remittance form and require the North Carolina Division of Services for the Deaf and Hard of Hearing to post it on its TANC website at http:// dsdhh. dhhs. state. nc. us/ division/ tanc/ tanc. html so that it can be downloaded by those companies that require its use. The Public Staff requested that the Commission direct local service providers to rely upon this remittance form only when remitting their TRS surcharges to DHHS, because all other forms for remitting the TRS access line surcharge are obsolete with this change in the surcharge. The Public Staff noted that the TRS remittance form for wireless providers, which differs from the TRS remittance form for local service providers, may be downloaded from the Wireless 911 Board’s website.
WHEREUPON, the Commission reaches the following
CONCLUSIONS
1 G. S. 62- 157( i).
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GENERAL ORDERS – TELECOMMUNICATIONS
After careful consideration, the Commission concludes that it is appropriate to grant Public Staff’s Motion.
Specifically, the Commission approves the reduction in the TRS surcharge from $. 11 per access line per month to $. 09 per access line per month, effective January 1, 2008. Also, the Commission approves the use of the revised remittance form attached hereto as Appendix B and requires the North Carolina Division of Services for the Deaf and Hard of Hearing to post it on its TANC website at http:// dsdhh. dhhs. state. nc. us/ division/ tanc/ tanc. html so that it can be downloaded by those companies that require its use. Furthermore, as recommended by the Public Staff, the Commission directs local service providers to rely upon this remittance form only when remitting their TRS surcharges to DHHS, because all other forms for remitting the TRS access line surcharge are obsolete with this change in the surcharge. The Public Staff noted that the TRS remittance form for wireless providers, which differs from the TRS remittance form for local service providers, may be downloaded from the Wireless 911 Board’s website.
IT IS, THEREFORE, ORDERED as follows:
1. That the monthly TRS surcharge be decreased from $ 0.11 per access line to $ 0.09 per access line effective on January 1, 2008. The decrease should be reflected in customers’ bills issued on or after January 1, 2008.
2. That the bill message/ insert as set forth in Appendix A shall appear in customers’ January bills, issued on or after January 1, 2008.
3. That local service providers be authorized to continue to retain $ 0.01 per access line, per month, of the TRS access line surcharge for collection, inquiry, and administrative expenses.
4. That the TRS surcharge remittance form attached hereto as Appendix B is approved for use by local service providers to remit their TRS access line surcharges to DHHS. With this change in the surcharge, all other TRS remittance forms are obsolete. Therefore, local service providers should rely exclusively upon this form in remitting their TRS access line surcharges to DHHS.
5. That the Division of Services for the Deaf and Hard of Hearing shall post the revised TRS surcharge remittance form, attached hereto as Appendix B, on the TANC website so as to make it available for downloading.
ISSUED BY ORDER OF THE COMMISSION
This the 13th day of December , 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
kh121307.01
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GENERAL ORDERS – TELECOMMUNICATIONS
APPENDIX A
NOTICE OF TELECOMMUNICATIONS RELAY SERVICE ( TRS) SURCHARGE DECREASE
Effective with telephone bills issued on or after January 1, 2008, the Telecommunications Relay Service ( TRS) surcharge is $ 0.09 per access line, per month. On December ____, 2007, the North Carolina Utilities Commission authorized a decrease in the monthly TRS surcharge amount from $ 0.11 to $ 0.09 to maintain adequate funding for Telecommunications Access North Carolina ( TANC). TANC is a program within the North Carolina Department of Health and Human Services that enables persons with hearing, speech, and vision impairments to communicate with others by telephone.
APPENDIX B
NC DEPARTMENT OF HEALTH AND HUMAN SERVICES
DIVISION OF SERVICES FOR THE DEAF AND HARD OF HEARING
DHHS- RELAY NORTH CAROLINA
TELECOMMUNICATIONS RELAY SERVICE ( TRS) SURCHARGE MONTHLY REPORT
SURCHARGES ARE TO BE COLLECTED IN ACCORDANCE WITH N. C. G. S. § 62- 157 AND NORTH CAROLINA UTILITIES COMMISSION ORDERS IN DOCKET P- 100, SUB 110, AND ARE TO BE REMITTED MONTHLY, ACCOMPANYING THIS REPORT, NO LATER THAN THE TWENTIETH ( 20TH) OF THE FOLLOWING MONTH. CHECKS SHOULD BE MADE PAYABLE TO: DHHS – RELAY NORTH CAROLINA AND SHOULD BE MAILED AS FOLLOWS:
DHHS – Controller’s Office A/ R
2025 MAIL SERVICE CENTER
RALEIGH, NC 27699- 2025
LEC/ CLP/ TMC: _______________________________________________________________________________
Surcharges Collected/ Billed for Calendar Month Ending: _______________________________________________
Month / Day / Year
Number of Qualified Access Lines Billed During Calendar Month: _____________________
Number of Qualified Access Lines Collected During Calendar Month: _____________________
Surcharge Billed ($. 09 per qualified access line): _____________________
Less: Billing and Collection Charge ($ .01 per access line collected): ______________
Less: Uncollectibles/ Adjustments for Prior Periods ______________
Net Amount Remitted to DHHS: ____________
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GENERAL ORDERS – TELECOMMUNICATIONS
Remitted by ( COMPANY, if different from above) __________________________________________________
( Please Print)
Authorized by __________________________________________
( Please print):
Authorized Signature: __________________________________________
Date: __________________________________________
DOCKET NO. P - 100, SUB 110
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Telecommunications Relay Service, North Carolina
)
)
ERRATA ORDER
BY THE CHAIRMAN: On December 13, 2007, the Commission issued its Order Approving A Decrease In The Surcharge, Authorizing Bill Message/ Insert Notification, and Approving A Revision To The Surcharge Remittance Form, which included Appendix A – Notice of Telecommunications Relay Service ( TRS) Surcharge Decrease which reflected a blank date for the issuance of the Order. This was an error. The second sentence of the notice set forth is Appendix A should read “ On December 13, 2007, the North Carolina Utilities Commission authorized a decrease in the monthly TRS surcharge amount from $ 0.11 to $ 0.09 to maintain adequate funding for Telecommunications Access North Carolina ( TANC).”
IT IS, THEREFORE, SO ORDERED.
ISSUED BY ORDER OF THE COMMISSION.
This the 14th day of December, 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
kh121407.01
6
GENERAL ORDERS – TELECOMMUNICATIONS
DOCKET NO. P - 100, SUB 133f
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Lifeline and Link- up Service Pursuant to Section 254 of the Telecommunication Act of 1996
)
)
)
ORDER CONCERNING TASK FORCE REPORT AND AUTHORIZING PILOT PROGRAM
BY THE COMMISSION: On July 16, 2007, the Lifeline/ Linkup Task Force submitted its semi- annual report to the Commission, as requested in the Commission’s Order Requesting Further Study To Adopt Lifeline/ Link- Up Program Expansion, dated August 4, 2005.
The Task Force reported that, as of June 30, 2007, there were 121,228 households receiving Lifeline benefits. During the period January 1, 2007 through June 30, 2007, there were 3,022 households that received Link- Up discounts for the cost of connecting telephone service. In comparison, the December 31, 2006 reports filed by local providers reflected 126,408 Lifeline recipients. The Task Force also reported that the December 2006 reports showed that, from July 1, 2006 to December 31, 2006, there were 3,133 households that received Link- Up discounts. However, not all local telephone providers have filed their Lifeline/ Link- Up statistics for the January 1, 2007 to June 30, 2007 period, so total numbers are tentative.
The Commission, in its previous Order, also instructed the Task Force to continue studying methods to streamline the application and eligibility processing for the Lifeline/ Link- Up benefits. The Task Force has studied several ways to expand program participation since that time.
As a first step to increase Lifeline/ Link- Up participation, the Task Force recommended streamlining the enrollment process for Lifeline recipients who receive Food Stamps. Under the current system, once a person is found eligible to receive Food and Nutrition Services ( Food Stamps), Medicaid, Work First, Supplemental Security Income ( SSI), Low Income Energy Assistance Program ( LIHEAP) or Section 8 housing ( hereafter collectively referred to as “ qualifying benefit programs”), that person is automatically eligible to receive Lifeline/ Link- Up benefits. However, before an individual can receive such benefits, county Department of Social Services ( DSS) offices must receive the applications and verify eligibility for all of the qualifying benefits programs except Section 8 housing and SSI.
The Task Force recommended that the North Carolina Department of Health and Human Services ( DHHS) data system, which maintains eligibility information on all recipients of Food Stamps, Medicaid, SSI, Work First and LIHEAP, be used to streamline the enrollment process. The Task Force has been working with DHHS to create a data file of individuals who have met the Food Stamps criteria. This file, once created, would be provided to the telephone companies monthly.
In the streamlined enrollment process, DHHS would scan the records of eligible Food Stamp recipients monthly to identify the telephone company providing local telephone service to
7
GENERAL ORDERS – TELECOMMUNICATIONS
each Food Stamp recipient. An electronic file would be created for each telephone company containing the names and telephone numbers of Food Stamp recipients receiving basic telephone service from that local exchange telephone company. The file would be mailed or sent by internet to the Lifeline/ Link- Up coordinator of each local exchange telephone company. Each company would then match the DHHS eligibility file with its customer account records and identify persons eligible for the discount who are not receiving it. The telephone company would automatically grant the Lifeline discount to those persons starting with the next billing cycle.
Since the above procedure would eliminate steps one and two that presently are required to enroll Food Stamp recipients in Lifeline and certify their eligibility to their local telephone company, it should help to increase enrollment in the program.
The Task Force also noted that the Food Stamp application form has been revised to include information about Lifeline/ Link- Up, obtain all necessary information about the applicant’s local telephone company, and obtain a waiver to allow the benefits eligibility information to be shared with the applicant’s telephone company. The major remaining step in implementing the new enrollment procedure is to add the Lifeline information to the Food Stamp computer data base. DHHS and the Task Force continue working towards that goal and remain optimistic that it can be met in 2007.
The Task Force also analyzed the Medicaid application process to determine if similar changes could be made to increase Lifeline enrollment. Here the outlook is more disappointing. The Task Force found that the Medicaid computer data base does not have the fields available for recording needed information. The Task Force concluded that it does not appear that similar changes allowing for the enrollment of Medicaid recipients will be possible in the near future.
With regard to Link- Up benefits for Food Stamp recipients, the enrollment procedure would remain similar to the present system. The reason is that those persons who do not have telephone service at the time of their Food Stamp application will have no telephone company to whom DHHS can send their Lifeline/ Link- Up eligibility information. Therefore, those persons would be given a form stating their eligibility for Lifeline/ Link- Up, and it would then be incumbent upon them to contact the local telephone company of their choice to establish service and become enrolled for Lifeline/ Link- Up benefits.
The Task Force believed that the above described modifications in the Lifeline enrollment procedures for Food Stamp recipients will make the application and verification processes more efficient and increase participation in the program.
As a second step to increase Lifeline/ Link- Up participation, the Task Force studied the possibility of using a self- certification procedure for enrolling applicants in Lifeline/ LinkUp and recommended that self- certification be tested in North Carolina.
The Task Force noted that the present steps requiring the social services worker and applicant to complete a separate verification form and requiring the social services worker to send the completed form to the applicant’s local telephone company reduce the efficiency of the
8
GENERAL ORDERS – TELECOMMUNICATIONS
eligibility process, while self- certification may be an avenue to improve its efficiency. Once fully implemented, self- certification would eliminate those two steps and, instead, the consumer could obtain a self- certification form from any number of sources, including the telephone company, DSS and other human service agencies. In order to reduce the possibility of fraud, the Task Force recommended that the self- certification form include a section in which the consumer would certify, under penalty of perjury, that he/ she is a recipient of one or more qualifying benefits.
Verizon, Embarq, the smaller independent telephone companies and the telephone membership corporations have concerns about the additional administrative costs that self- certification could require, as well as the potential for fraud and the necessity for conducting eligibility reviews. However, the Task Force noted that AT& T uses self- certification in all of the other southern states it serves and that AT& T favors adopting such a system in North Carolina. AT& T is willing to try self- certification for a period of time to see how it works. Therefore, the Task Force recommended that the Commission approve a self- certification pilot program by AT& T for at least one year.
The Task Force also addressed the feasibility of adding two additional eligibility criteria, the National School Lunch Program ( NSL) and an income test, to expand Lifeline/ Link- Up participation, as earlier requested by the Commission.
NSL is administered jointly by the Department of Agriculture ( USDA) and the North Carolina Department of Public Instruction ( DPI). By federal law, a student’s eligibility for free or reduced school meals is confidential information. DPI is authorized to share such information with other state agencies, such as Medicaid and the North Carolina Children’s Health Insurance Program, for a few limited purposes. However, there is no authority for NSL data sharing between DPI, or the USDA, and DHHS.
The Task Force observed that, in some states, the state agency that manages the Lifeline/ Link- Up data is also the agency that administers NSL, such as the Department of Social Services. Furthermore, other states have built the necessary information links by having a third- party administrator manage the Lifeline/ Link- Up program and by giving the administrator the legal authority to receive all necessary information from the agencies that administer the qualifying benefit programs. North Carolina would need to make several significant changes in order to implement either of those models.
The Task Force pointed out that, to qualify for NSL, the applicant’s household must be at or below 130% of the federal poverty guidelines. Furthermore, children in households that receive Food Stamps or Work First are automatically eligible for free school meals. The Task Force concluded that many of the households that would be added by including NSL as a Lifeline/ Link- Up criteria are already covered under Food Stamps and Work First.
The Task Force has not conducted an exhaustive study, but there seem to be no definitive statistics showing that NSL eligibility criteria results in a substantial increase in Lifeline/ Link- Up participation. The Task Force recommended not adopting the NSL program as an automatic eligibility criterion at this time.
9
GENERAL ORDERS – TELECOMMUNICATIONS
The Task Force also studied the possibility of adding household income as an eligibility criterion. The Task Force stated that, in contradistinction to certification based on a person’s eligibility for Foods Stamps, Medicaid and other qualifying benefits, separate income verification would be necessary if such a criterion were to be adopted. Furthermore, the FCC has recommended that this income verification function be the responsibility of the local telephone companies. However, the telephone companies do not have local offices in most areas, and the administrative costs of reviewing and verifying applications based on income eligibility could be substantial. The Task Force also believed it would not be practical to place this additional burden on the Food Stamp, Medicaid, Work First or SSI eligibility workers.
The Task Force also explored establishing an information link between DHHS and the North Carolina Department of Revenue ( DOR) to enable DHHS to verify a Lifeline/ Link- Up applicant’s income and certify his/ her eligibility to the telephone company. The Task Force stated that, similar to NSL information, the authority for sharing DOR individual taxpayer information with other agencies is very limited. The Task Force argued that these barriers and the cost of administering a Lifeline/ Link- Up income criterion render that option infeasible at this time.
Lastly, the Task Force stated that it has been working with the North Carolina Families Accessing Services Through Technology ( NC FAST) to ensure that Lifeline/ Link- Up is among the public benefit programs offered under NC FAST. The Task Force stated that the target date for implementing NC FAST has been pushed back indefinitely because of funding and design considerations.
In concluding its report to the Commission, the Task Force reported that 200,000 Lifeline/ Link- Up brochures were initially printed and that all but approximately 5,000 have been distributed to numerous agencies, telephone companies and organizations for distribution to residents. Also, a PDF version of the Lifeline/ Link- Up brochure is available on the Commission’s web site and on the DHHS wed site. Lastly, to ensure further outreach, AT& T has agreed to pay for 100 posters to be printed for placement in each of the DSS offices throughout the state.
WHEREUPON, the Commission reaches the following
CONCLUSIONS
After careful consideration, the Commission concludes that the following actions should be taken to expand the availability of Lifeline/ Link- Up benefits to qualified individuals: ( 1) authorize the streamlining of the Lifeline/ Link- Up enrollment procedures for Food Stamps as recommended by the Task Force to efficiently inform recipients of Food Stamps of their eligibility for Lifeline and to certify their eligibility to their telephone company; ( 2) approve a pilot program by AT& T to allow self- certification of AT& T’s customers for Lifeline/ Link- Up; and ( 3) decline to adopt the NSL and household income eligibility criteria at this time for the reasons as generally stated by the Task Force.
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GENERAL ORDERS – TELECOMMUNICATIONS
The Commission commends the Task Force for its work thus far and believes that the Task Force should continue to work with the relevant human services agencies and local exchange telephone companies to further streamline the process of enrolling program participants. Based on the Task Force’s report that the NC FAST project will be deferred indefinitely, the Commission continues to encourage the human services agencies and the local exchange telephone companies to discuss and analyze alternatives to expand the enrollment of Lifeline/ Link- Up benefits to qualified recipients. In addition, the efficiency gains in the area of application processing should be beneficial to the agencies and telephone companies for the statistical reporting of Lifeline/ Link- Up recipients.
The Commission is also supportive of the pilot study proposed by AT& T relating to self- certification to receive Lifeline/ Link- Up benefits for qualifying recipients. We note the opposition expressed to this approach by Verizon, Embarq, the smaller independent telephone companies, and the telephone membership corporations to this approach, but we conclude that there is sufficient merit to the approach that AT& T should be allowed to conduct a twelve- month pilot study to gain information to evaluate whether the self- certification for Lifeline/ Link- Up benefits approach should be expanded to include other local exchange telephone companies.
However, the Commission has one concern about the form AT& T wants to use. Certainly, prevention of fraud in a self- certification context is an important consideration, and the Commission appreciates the motivation behind the Task Force’s recommendation that the self- certification form include a section requiring the consumer to certify, under penalty of perjury, that he/ she is the recipient of one or more of the qualifying benefits. However, the Commission is unaware of any state statutory authority allowing it to subject a Lifeline recipient to prosecution for perjury for making a false, but unsworn, 1 statement in order to secure this benefit. State law does provide that if an applicant for benefits knowingly makes false statements to secure benefits to which he or she otherwise would not be entitled may subject the applicant to criminal prosecution. G. S. 14- 100. Thus, the Commission believes that the self- certification form should be modified as follows:
I certify that I am a current recipient of the above program( s) and that I am aware that knowingly providing false information to receive or to continue to receive the Lifeline/ LinkUp benefit may subject me to criminal penalties. Further, I certify that I will notify AT& T North Carolina when I am no longer participating in at least one of the above designated program( s)…
Lastly, it appears that the NSL and household income criteria should not be adopted to expand automatic enrollment for Lifeline/ Link- Up benefits. The Task Force explained that the lack of cohesion between NSL and household income with the other social benefits programs would prove too cumbersome to implement. Also, the use of these two additional criteria raised concerns as to degree of confidentiality for the applicants’ data that would be required to receive Lifeline/ Link- Up benefits. It also appears that there would be a significant degree of overlap of
1 Under North Carolina law, perjury is a defined as a false statement under oath, knowingly, willfully and designedly made, in a proceeding in a court of competent jurisdiction or concerning a matter where the affiant is required by law to be sworn as to some matter material to the issue or point in question. G. S. 4- 209; State v Smith, 230 N. C. 198, 52 SE2d 348 ( 1949). 11
GENERAL ORDERS – TELECOMMUNICATIONS
households that currently qualify for Lifeline/ Link- Up benefits based on the present group social services programs if the NSL and household income criteria were added to qualify for Lifeline/ Link- Up benefits.
IT IS, THEREFORE, ORDERED as follows:
1. That the streamlining of Lifeline enrollment procedures as recommended by the Task Force be authorized. The Task Force shall continue to study and report to the Commission regarding any modification that ensures further operational efficiencies in the enrollment procedure for Lifeline/ Link- Up benefits.
2. That AT& T be allowed to implement a twelve- month pilot program for self- certification by qualified recipients to receive Lifeline/ Link- Up benefits, provided that the self- certification form is modified as set forth above. AT& T is directed to submit to the Commission 30 days after the completion of the twelve- month pilot program its findings to include, but not be limited to the following information:
a. The raw number and percentage of applicants subscribing to Lifeline/ LinkUp benefits through self- certification.
b. The raw number and percentage of applicants provided Lifeline/ LinkUp benefits through self- certification and who later were determined to have knowingly provided false information in their application.
c. The identifiable additional cost incurred by AT& T associated with the administration and tracking of applicants receiving Lifeline/ LinkUp benefits through self- certification and the methodology used to identify such costs.
d. AT& T’s recommendation as to the continuation of self- certification.
3. That NSL and household income not be established as criterion to ensure automatic enrollment for Lifeline/ Link- Up benefits at this time.
ISSUED BY ORDER OF THE COMMISSION.
This the 5th day of September , 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
je090407.02
12
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
DOCKET NO. E- 2, SUB 903
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Application by Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc. for Authority to Adjust Its Electric Rates Pursuant to G. S. 62- 133.2 and NCUC Rule R8- 55
)
)
)
)
ORDER APPROVING FUEL CHARGE ADJUSTMENT
HEARD: Tuesday, August 7, 2007, at 9: 00 a. m., in the Commission Hearing Room, Dobbs Building, 430 North Salisbury Street, Raleigh, North Carolina
BEFORE: Chairman Edward S. Finley, Jr., Presiding and Commissioners Sam J. Ervin, IV, Lorinzo L. Joyner, and William T. Culpepper, III
APPEARANCES:
For the Applicant:
Len S. Anthony, Deputy General Counsel – Regulatory Affairs, Progress Energy Service Company, Post Office Box 1551, Raleigh, North Carolina 27602- 1551
Dwight Allen, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLP, Post Office Box 2611, Raleigh, North Carolina 27602- 2611
For the Public Staff-- North Carolina Utilities Commission:
Antoinette R. Wike, Chief Counsel, and Tab Hunter, Staff Attorney, Public Staff-- North Carolina Utilities Commission, 4326 Mail Service Center, Raleigh, North Carolina 27699- 4326
For the Attorney General:
Len G. Green, Assistant Attorney General, North Carolina Department of Justice, Post Office Box 629, Raleigh, North Carolina 27602- 0629
For the Carolina Utility Customers Association, Inc.:
James P. West, West Law Offices, P. C., Suite 2325, Two Hannover Square, 434 Fayetteville Street, Raleigh, North Carolina 27601
For the Carolina Industrial Group for Fair Utility Rates II:
Ralph McDonald, Bailey & Dixon, L. L. P., Post Office Box 1351, Raleigh, North Carolina 27602- 1351
13
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
BY THE COMMISSION: Pursuant to G. S. 62- 133.2 and Commission Rule R8- 55( e), Carolina Power & Light Company, d/ b/ a Progress Energy Carolinas, Inc. ( PEC or Company), is required to file, at least 60 days prior to the first Tuesday in August of each year, an Application for a change in rates based solely on changes in the cost of fuel and the fuel component of purchased power. On June 8, 2007, PEC filed its Application, along with the testimony and exhibits of Company witnesses Dewey S. Roberts and Bruce P. Barkley. Pursuant to Ordering Paragraph No. 3 in the Commission’s Order in Docket No. E- 2, Sub 889, the Company requested an increment of 1.011¢/ kWh ( 1.045¢/ kWh including gross receipts tax) to the base fuel factor of 1.276¢/ kWh approved in PEC’s last general rate case, Docket No. E- 2, Sub 537, and a recommended total base fuel factor of 2.287¢/ kWh. The Company also requested an increment of 0.388¢/ kWh ( 0.401¢/ kWh including gross receipts tax) for the Experience Modification Factor ( EMF) rider to collect $ 144.4 million of under- recovered fuel expense. The Company proposed that the EMF rider be in effect for a fixed 12- month period.
On June 11, 2007, the Carolina Industrial Group for Fair Utility Rates II ( CIGFUR II) filed a petition to intervene, which the Commission granted on June 14, 2007.
On June 22, 2007, the Carolina Utility Customers Association, Inc. ( CUCA) filed a petition to intervene, which the Commission granted on June 27, 2007.
On July 18, 2007, the Attorney General filed a notice of intervention pursuant to G. S. 62- 20.
The intervention of the Public Staff is noted pursuant to G. S. 62- 15( d) and Commission Rule R1- 19( e).
On June 25, 2007, the Commission issued its Order Scheduling Hearing Dates, Establishing Filing Dates and Discovery Guidelines, and Requiring Public Notice. The Commission scheduled the hearing for August 7, 2007, and required that intervenor testimony and exhibits, as well as petitions to intervene, be filed by July 25, 2007.
On July 25, 2007, the Public Staff filed the testimony of Michael C. Maness and the affidavits of Randy T. Edwards and Thomas S. Lam.
On August 1, 2007 PEC filed the rebuttal testimony of Bruce P. Barkley.
On August 6, 2007, PEC filed the affidavits of publication showing that public notice had been given as required by Rule R8- 55( f) and the Commission’s June 25, 2007 Order.
The docket came on for hearing, as ordered, on August 7, 2007. PEC presented the testimony of Dewey S. Roberts and Bruce P. Barkley. The Public Staff presented the testimony of Michael C. Maness. No other party presented a witness; however, with agreement from the parties, the Commission admitted the affidavits filed by Randy T. Edwards and Thomas S. Lam. The Commission requested the filing of proposed orders or briefs by September 4, 2007.
14
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
On September 4, 2007, PEC filed a proposed order. The Public Staff filed certain proposed findings of fact, evidence and conclusions, and ordering paragraphs. CUCA filed a brief and motion for reconsideration pursuant to G. S. 62- 80 in this Docket and Docket No. E- 2, Sub 889. On September 6, 2007, PEC filed a response in opposition to CUCA’s motion for reconsideration.
Based upon the Company’s verified Application, the testimony and exhibits received into evidence at the hearing, and the record as a whole, the Commission now makes the following:
FINDINGS OF FACT
1. Carolina Power & Light Company, db/ a Progress Energy Carolinas, Inc., is duly organized as a public utility company under the laws of the State of North Carolina and is subject to the jurisdiction of the North Carolina Utilities Commission. PEC is engaged in the business of generating, transmitting, and selling electric power to the public in North Carolina. PEC is lawfully before this Commission based upon its Application filed pursuant to G. S. 62- 133.2 and Commission Rule R8- 55.
2. The test period for purposes of this proceeding is the 12- month period ended March 31, 2007.
3. PEC’s fuel procurement and power purchasing practices were reasonable and prudent during the test period.
4. The performance of PEC’s base load plants during the test period was reasonable and prudent.
5. The test period North Carolina retail fuel expense underrecovery in this proceeding is $ 135,971,836. It is appropriate to increase this fuel expense underrecovery by $ 8,217,000 to reflect interest through March 31, 2007, related to the Settlement Agreements approved in Docket No. E- 2, Subs 868 and 889.
6. It is reasonable to apply a 58% fuel ratio to the energy cost of purchases from power marketers and other sellers that are unable or unwilling to provide PEC with actual fuel costs.
7. The proper base fuel factor for PEC calculated pursuant to G. S. 62- 133.2 is 2.288¢/ kWh ( 2.364¢/ kWh including gross receipts tax), which is an increment of 1.012¢/ kWh ( 1.046¢/ kWh including gross receipts tax) above the base fuel factor established in Docket No. E- 2, Sub 537.
8. The appropriate EMF increment to use in this proceeding is 0.387¢/ kWh ( 0.400¢/ kWh including gross receipts tax) based on a total fuel cost underrecovery of $ 144,188,836.
EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 1
15
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
This finding of fact is essentially informational, procedural, and jurisdictional in nature and is not controversial.
EVIDENCE AND CONCLUSIONS FOR FINDING OF FACT NO. 2
G. S. 62- 133.2 sets out the verified, annualized information that each electric utility is required to furnish to the Commission in an annual fuel charge adjustment proceeding for a historical 12- month period. Commission Rule R8- 55( b) prescribes the twelve months ending March 31 as the test period for PEC. All pre- filed exhibits and direct testimony submitted by the Company in support of its Application utilized the twelve months ended March 31, 2007, as the test year for purposes of this proceeding. The Company made the standard adjustments to the test period data to reflect normalizations for weather, customer growth, generation mix, and Southeastern Power Administration ( SEPA) and North Carolina Eastern Municipal Power Agency ( NCEMPA) transactions.
The test period proposed by the Company was not challenged by any party, and the Commission concludes that the test period appropriate for use in this proceeding is the twelve months ended March 31, 2007.
EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 3 & 4
The evidence for these findings can be found in the Company’s Application and the monthly fuel reports on file with the Commission, as well as the testimony of Company witnesses Barkley and Roberts and the affidavits of Public Staff witnesses Edwards and Lam.
Commission Rule R8- 52( b) requires each utility to file a Fuel Procurement Practice Report at least once every ten years, as well as each time the utility's fuel procurement practices change. In its Application, the Company indicated that the procedures relevant to the Company’s test period fuel procurement practices were filed in the Fuel Procurement Practices Report, which was updated in June 2005. In addition, the Company files monthly reports of its fuel costs pursuant to Rule R8- 52( a). These reports were filed in Docket No. E- 2, Sub 888 for calendar year 2006 and Docket No. E- 2, Sub 898 for calendar year 2007.
Company witness Barkley described in detail the Company’s coal and gas procurement practices. The Company relies on short- term and long- term simulation models to estimate the coal and gas requirements for the PEC generating plants. Using this information in conjunction with plant inventory levels and supply risks, a determination is made of the coal requirements at that time. Once this determination is made, coal suppliers are contacted and asked to submit bids to meet the coal requirements. Coal contracts are awarded based on an economic evaluation, supplier credit review, past performance, and coal specifications. Gas contracts are awarded using a similar process. During the test period, PEC purchased coal at an average price of $ 71.35 per ton and gas at $ 8.41/ mmbtu, excluding fixed costs.
Witness Barkley further testified that PEC continuously evaluates the term and spot markets for fuel and purchased power in order to determine the appropriate portfolio of long 16
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
term and spot purchases that ensures a reliable supply of electricity to customers at the lowest reasonable prices. Such evaluations include daily, weekly, and monthly solicitations and subscriptions to fuel pricing services and trade publications. Witness Barkley concluded that PEC prudently operated its generation resources and purchased power during the period under review in order to minimize its costs.
Witness Roberts testified that PEC mitigates the impact of increasing fuel costs by using a diverse mix of generating plant resources. The Company’s efficient use of nuclear, fossil- fueled, and hydroelectric plants helps lessen the impacts of volatility in the price or supply of any one fuel source. This is illustrated by the fact that over 45% of PEC’s generation during the test period was provided by nuclear plants at an average fuel cost of $ 4.50/ MWH— less than 20% of the cost of coal generation and less than 5% of the cost of natural gas generation.
Regarding power plant performance, witness Roberts testified that PEC uses two different measures to evaluate the performance of its generating facilities-- the equivalent availability factor and the capacity factor. The equivalent availability factor is the percentage of a given period time that a facility is available to operate at full power if needed. It describes how well a facility was operated, even in cases where the unit was used in a load following application. Capacity factor measures the generation a facility actually produces against the amount of generation that theoretically could be produced in a given time period, based on the facility’s maximum dependable capacity.
Regarding the operation of PEC’s natural gas and coal fired plants, witness Roberts explained that PEC’s combustion turbines averaged a 94.58% equivalent availability and a 3.77% capacity factor for the twelve- month period ending March 31, 2007. He testified that these performance indicators are consistent with combustion turbine generation’s intended purpose. PEC’s combustion turbine generation was almost always available for use, but operated minimally. PEC’s intermediate Richmond County combined cycle unit had a 90.18% equivalent availability and a 28.21% capacity factor for the twelve- month period ending March 31, 2007. The Company’s intermediate coal fired units had an average equivalent availability factor of 88.79% and a capacity factor of 59.37% for the twelve- month period ending March 31, 2007. Witness Roberts concluded that these performance indicators for the Company’s intermediate units are indicative of good performance and management. Witness Roberts testified that PEC’s fossil base load units had an average equivalent availability of 90.04% and a capacity factor of 69.53% for the twelve- month period ending March 31, 2007. Thus, he concluded that the fossil base load units were also well managed and operated.
With regard to the operation of PEC’s nuclear generation plants, witness Roberts explained that, for the twelve- month period ending March 31, 2007, the Company’s nuclear generation system achieved a net capacity factor of 91.84%. This capacity factor includes nuclear plant refueling outages. In contrast, the North American Electric Reliability Council’s ( NERC) five- year average capacity factor for 2001- 2005, appropriately weighted for the size and type of each plant in PEC’s nuclear system, was 87.51%. The Company's nuclear system incurred a 3.2% forced outage rate during the twelve- month period ending March 31, 2007, compared to the industry average of 4.49% for similar size nuclear generators. Witness Roberts
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
concluded that these performance indicators reflect good nuclear performance and management for the review period.
Witness Roberts explained that Commission Rule R8- 55 provides that a utility shall enjoy a rebuttable presumption of prudent operation of its nuclear facilities if it achieves a system average nuclear capacity factor during the test period that is ( a) at least equal to the national average capacity factor for nuclear production facilities based on the most recent 5- year period available as reflected in the latest NERC Equipment Availability Report, appropriately weighted for size and type of plant, or ( b) an average systemwide nuclear capacity factor, based upon a two- year simple average of the systemwide capacity factors actually experienced in the test year and the preceding year, that is at least equal to the national average capacity factor for nuclear production facilities based on the most recent 5- year period available as reflected in the most recent NERC Equipment Availability Report, appropriately weighted for size and type of plant. Witness Roberts testified that the Company met the standard for prudent operation as set forth in Commission Rule R8- 55( i). Public Staff witness Lam verified the Company’s test year average capacity factor calculation.
Regarding power purchases to displace Company owned generation, witness Roberts testified that the Company is constantly reviewing power markets for purchase opportunities. He explained that PEC purchases power when there is reliable power available that is less expensive than the marginal cost of the Company’s available resources. This review of the power markets is done on an hourly, daily, weekly, and monthly basis. Also, with regard to long term resource planning, PEC always evaluates purchased power opportunities against self- build options.
No other party offered any evidence regarding PEC’s fuel procurement, power purchases, or base load performance during the test period. Thus, the Commission finds and concludes that PEC’s fuel procurement procedures and power purchasing practices and the operation of the Company’s base load plants were reasonable and prudent during the test period.
EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT NOS. 5- 8
The evidence supporting these findings can be found in the testimony and exhibits of Company witnesses Barkley and Roberts, the affidavits of Public Staff witnesses Edwards and Lam and the testimony of Public Staff witness Maness.
In Barkley Exhibit No. 5, the Company calculated a fuel factor of 2.339¢/ kWh based on normalized capacity factors for its nuclear units in accordance with Commission Rule R8- 55( c)( 1), by using the five- year NERC Equipment Availability Report 2001- 2005 average for boiling water reactors ( BWRs) and pressurized water reactors ( PWRs). The workpapers included in Barkley Exhibit No. 9 show kWh normalization for customer growth and weather at both meter and generation levels performed in a manner consistent with that used in past cases. Normalization adjustments were also made for SEPA deliveries and hydro generation. The unit prices used for coal, nuclear, internal combustion turbines, purchases, and sales were also calculated in a manner consistent with that used in past cases. The NERC five- year capacity factors for Brunswick Unit Nos. 1 and 2, both BWRs, were normalized at 86.07%, and the capacity factors of the Robinson and Harris Units, both PWRs, were normalized at
18
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
89.18%. The Company’s NERC normalized calculations resulted in a system nuclear capacity factor of 87.51% using this data.
In Barkley Exhibit No. 5A, the Company calculated a fuel factor of 2.358¢/ kWh based on forecasted nuclear generation performance, kWh sales, and fuel cost. After reviewing the Company’s Application, Public Staff witness Lam concluded that this factor was reasonable. The computation of the 2.358¢/ kWh fuel factor is summarized below:
Generation Type MWhs Fuel Cost
Nuclear 28,664,829 $ 136,517,255
Purchases - Cogeneration 653,451 25,048,499
Purchases - AEP Rockport 2,015,402 37,921,107
Purchases - Broad River 546,978 59,638,816
Purchases - SEPA 182,228 0
Purchases - Other 208,963 8,207,774
Hydro 638,699 0
Coal 32,391,138 993,046,230
IC & CC 1,975,708 221,765,888
Sales ( 2,062,350) ( 60,079,732)
Total Adjusted 65,215,046 $ 1,422,065,837
Less NCEMPA:
PA Nuclear 3,856,189 19,247,300
PA Buy- Back & Surplus ( 109,776) ( 1,364,300)
PA Coal 1,359,471 43,292,400
System Projected Fuel Expense 1,360,890,437
Projected kWh meter sales 57,703,629,000
Projected Fuel Factor (¢/ kWh) 2.358
No other party presented any evidence regarding PEC's forecasted fuel cost during the period the rate set in this proceeding would be in effect, nor did any other party challenge PEC's forecasted fuel costs or fuel factor. Therefore, the Commission concludes that, in the absence of the Settlement Agreement approved in Docket No. E- 2, Sub 889, PEC would be entitled to a fuel factor of 2.358¢/ kWh ( 2.394¢/ kWh including gross receipts tax) pursuant to the provisions of G. S. 62- 133.2.
However, witness Barkley did not recommend the adoption of a factor of 2.339¢/ kWh or 2.358¢/ kWh. Instead, he recommended the establishment of a fuel factor of 2.287¢/ kWh based on the Settlement Agreement approved by the Commission in PEC’s 2006 fuel case proceeding, Docket No. E- 2, Sub 889. Witness Barkley explained that Ordering Paragraph No. 3 of the Commission’s September 25, 2006 Order issued in Docket No. E- 2, Sub 889 provides:
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
That effective for service rendered on and after October 1, 2007, an EMF shall be derived based upon PEC’s fuel cost under- recovery for the test year ending March 31, 2007, including any approved interest, and the prospective component of the fuel factor will be equal to 2.675¢/ kWh less the derived EMF.
Witness Barkley calculated and requested approval of an EMF of 0.388¢/ kWh. Therefore, the base fuel factor to be established in this proceeding pursuant to the Settlement Agreement, as recommended by PEC, is 2.287¢/ kWh.
Public Staff witness Lam also supported the derivation of a base fuel factor to be established in this proceeding based upon the Settlement Agreement approved by the Commission in Docket No. E- 2, Sub 889. Since the EMF recommended by the Public Staff equaled .387¢/ kWh, witness Lam recommended a corresponding base fuel factor of 2.288¢/ kWh.
As noted above, PEC witness Barkley also calculated and recommended that the Commission approve and establish an EMF increment equal to 0.388¢/ kWh in this proceeding in order to allow PEC to collect $ 144,378,411 of under- recovered fuel expense. Witness Barkley testified that the total under- recovered fuel expense of $ 144,378,411 consisted of three components. The first component was the test period under- recovery of $ 135,824,352 using the base fuel factors approved by the Commission in Docket No. E- 2, Sub 868, PEC’s 2005 fuel proceeding, and Docket No. E- 2, Sub 889, PEC’s 2006 fuel proceeding, which were in effect for billing purposes during the test year in this proceeding. The test period under- recovery amount of $ 135,824,352 also included the use of a 50% fuel to energy cost ratio to determine the fuel cost of certain power purchases made by PEC from power marketers and other sellers who did not provide PEC with the actual fuel costs of such purchases. The second component consisted of an adjustment of $ 147,484 added to the test period under- recovered fuel expense as a result of increasing the 50% fuel to energy cost ratio for certain power purchases to a 58% ratio for the reasons described below. The third component was $ 8,406,575 of interest calculated by witness Barkley consistent with his interpretation of the Settlement Agreements and the Commission Orders in Docket No. E- 2, Sub 868 and Docket No. E- 2, Sub 889, which authorized the accrual of interest on certain under- recovered fuel costs. Witness Barkley calculated the requested EMF increment of 0.388¢/ kWh ( 0.401¢/ kWh) by dividing the total under- recovered fuel cost of $ 144,378,411 by the projected North Carolina retail sales of 37,240,057,920 kWhs.
Public Staff witness Edwards reviewed the EMF increment rate rider requested by PEC and made only one adjustment. Based upon the recommendation of Public Staff witness Maness that the amount of interest included by PEC in its total under- recovered fuel costs should be reduced by $ 190,000, witness Edwards testified that PEC’s EMF increment rider should be based upon a total fuel cost under- recovery of $ 144,188,411 divided by the projected North Carolina retail sales of 37,240,057,920 kWhs. Therefore, witness Edwards recommended an EMF increment rider equal to 0.387¢/ kWh. This adjustment was opposed by PEC and is addressed elsewhere in this Order.
Concerning the 58% fuel to energy cost ratio, Public Staff Edwards explained that, during the test year utilized for purposes of this proceeding, PEC purchased power from a number of power marketers, as well as from other suppliers who did not provide PEC with the actual fuel costs associated with those purchases. In order to determine the percentage of these power 20
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
purchase costs properly categorized as fuel costs, the Public Staff recommended the adoption of the approach for addressing this issue used in prior cases.
For purposes of calculating a percentage to be applied in fuel proceedings held in 2007, the Public Staff performed a review of the aggregate fuel component of off- system sales for Duke Energy Carolinas, LLC ( Duke) and PEC for the twelve months ended December 31, 2006. These sales are set forth in each of the utilities' Monthly Fuel Reports. Unlike in past years, the off- system sales for Virginia Electric and Power Company, d/ b/ a Dominion North Carolina Power ( DNCP), were not utilized in this review for purposes of calculating the fuel- to- energy percentage. The rationale for excluding DNCP from this analysis was two- fold. First, evaluation of the data indicated that there were only two DNCP off- system sale transactions that were eligible for inclusion in determining the appropriate fuel- to- energy percentage. One of those two transactions appeared to utilize a " proxy percentage" to determine the fuel component of total energy costs, rather than actual fuel costs. The other transaction had an immaterial impact on the analysis. Second, neither of the transactions recorded megawatt hours for the associated off- system sales. Thus, the inclusion of neither of these transactions would provide meaningful data for use in the analysis. Therefore, the Public Staff considered it reasonable to exclude these transactions from the determination of the fuel- to- energy percentage for purposes of this proceeding.
Witness Edwards explained that despite the removal of DNCP transactions, overall, this analysis was similar to that performed by the Public Staff for the 1997 Stipulation addressing this issue ( which was applicable to the utilities' 1997 and 1998 fuel proceedings), and the similar 1999 Stipulation filed in Docket No. E- 2, Sub 748 ( applicable to the 1999, 2000, and 2001 fuel cost proceedings). Similar analyses were performed for the fuel proceedings held in 2002, 2003, 2004, 2005, and again in 2006. The methodology used for each of the abovementioned Stipulations and subsequent fuel proceedings has been accepted by the Commission as reasonable in each fuel case since the beginning of 1997.
G. S. 62- 133.2 requires that purchased power- related costs recovered through fuel proceedings consist of only the fuel cost component of those purchases. However, in its Order in Duke's 1996 fuel proceeding, the Commission stated that whether a proxy for actual fuel costs associated with these types of purchases would be acceptable in a future fuel proceeding would depend on " whether the proof can be accepted under the statute, whether the proffered information seems reasonably reliable, and whether or not alternative information is reasonably available." Public Staff witness Edwards stated that the Public Staff continues to consider it reasonable to use the utilities' off- system sales as a basis for determining the proxy fuel cost as described above. Because the sales made by marketers and other suppliers utilize the same types of generation resources that the utilities use to make their sales, the Public Staff believes that it is reasonable to assume for purposes of this proceeding that the fuel- to- energy percentage inherent in the purchases made by the utilities is similar to the percentage exhibited by the utilities' sales. Additionally, the information used by the Public Staff to determine the off- system sales fuel percentage was derived from the Monthly Fuel Reports filed with the Commission and, in the opinion of the Public Staff, that information is reasonably reliable. Finally, the Public Staff stated it is unaware of any alternative information concerning the fuel cost component of marketers' sales made to utilities that is currently available for use by the Commission. 21
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
Therefore, the Public Staff believes that the methodology used in past Stipulations and in the analysis proposed for use in this proceeding meets the criteria set forth in the 1996 Duke Order.
As part of its current review, the Public Staff analyzed the relevant off- system sales information in several different ways. The Public Staff’s analyses resulted in fuel percentages ranging from 56.61% to 60.53%, as set forth on Edwards Exhibit I. After evaluating all of the data and calculations, the Public Staff concludes that the off- system sales fuel ratio should be 58%. No other party challenged this recommendation or offered any alternative proposal.
The Commission notes that the fuel cost associated with marketer purchases is an important part of the Company’s overall fuel cost. The use of a ratio to determine marketer fuel cost evolved with the emergence of an active wholesale bulk power market in 1996, which prompted this Commission to address the issue in the 1996 Duke Power Company fuel case. In its Order in that proceeding, the Commission stated, “ When faced with a utility’s reliance upon some such form of proof [ i. e., a reasonable and reliable proxy] in a future fuel adjustment proceeding, the considerations will be whether the proof can be accepted under the statute, whether the proffered information seems reasonably reliable, and whether or not alternative information is reasonably available.” Recognizing that an active wholesale bulk power market continues to evolve and applying this standard to the evidence presented herein, the Commission concludes, as it has in past proceedings, that the methodology recommended and used by the Public Staff to determine the fuel cost component of purchases from power marketers and other suppliers ( 1) satisfies the requirements set forth in the 1996 Duke fuel case order and ( 2) is reasonable and will be accepted for purposes of this proceeding. The Commission approved the use of the 58% ratio in the most recent Duke Power fuel proceeding, Docket No. E- 7, Sub 825. The Commission also concludes that the use of a 58% ratio in this proceeding as recommended by Public Staff witness Edwards is reasonable and should be adopted for purposes of the proceeding.
As noted above, the only contested issue among the witnesses was the proper methodology for calculating the appropriate amount of interest on the under- recovery of PEC’s fuel costs that occurred as a result of a Settlement Agreement approved by the Commission in Docket No. E- 2, Sub 868, PEC’s 2005 fuel charge adjustment proceeding. PEC witness Barkley and Public Staff witness Maness agreed that it was appropriate to include interest in the determination of the EMF to be approved for PEC in this proceeding to enable PEC to begin collecting the accrued interest. However, PEC witness Barkley concluded that the appropriate amount of interest was approximately $ 8,407,000, while Public Staff witness Maness determined that the appropriate amount of interest was equal to $ 8,217,000.
In his testimony, Public Staff witness Maness pointed out that the Commission approved a Settlement Agreement in Docket No. E- 2, Sub 868 ( the Sub 868 Settlement Agreement) that provided for a lower base fuel factor than the base fuel justified by the evidence in that case. This lower fuel factor was placed into effect and was billed by PEC for service rendered between October 1, 2005, and September 30, 2006. The Sub 868 Agreement also included the following provision:
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
PEC shall be allowed to charge and collect interest at the rate of 6%, compounded annually, on under- recovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, as a result of having adjusted the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding gross receipts tax, as proposed in its Application, until all such costs have been recovered.
Witness Maness noted that the Commission approved the Sub 868 Settlement Agreement and concluded that PEC would be allowed to collect the interest accrued pursuant to this Agreement as part of its EMF in future fuel proceedings, as actual amounts became known.
In Docket No. E- 2, Sub 889, PEC’s next fuel proceeding in 2006, witness Maness stated that the Commission approved another Settlement Agreement ( the Sub 889 Settlement Agreement) which provided for a total fuel factor ( including the EMF) for the period October 1, 2006, through September 30, 2007, which was lower than the total fuel factor justified by the evidence in that proceeding. The Sub 889 Agreement included the following provision:
PEC shall be allowed to charge and collect 6% interest on an amount equal to the under- recovery resulting from PEC agreeing to a total fuel factor of 2.55 cents per kWh in the 2006 case rather than a total fuel factor of 2.856 cents per kWh ( exclusive of gross receipts tax) until all such costs have been recovered.
Witness Maness testified that PEC had included interest accrued from October 1, 2005, through March 31, 2007, related to the Sub 868 and Sub 889 Settlement Agreements, in the EMF which PEC proposes to put into effect on October 1, 2007. Witness Maness agreed that PEC should begin collecting the interest which had already accrued through March 31, 2007, in the EMF approved in this proceeding; however, he testified that he had calculated a different amount on which interest should be computed than PEC.
PEC witness Barkley explained in his rebuttal testimony that PEC will collect the under- collections and interest associated with the Sub 868 Settlement Agreement over two annual billing periods. He testified that one portion will be recovered over the billing period beginning October 1, 2006, and the remainder will be collected during the period that will begin October 1, 2007. He also explained that the disagreement over the appropriate amount of interest pertains strictly to the timing of the repayment of the interest associated with the Sub 868 Settlement Agreement, which began on October 1, 2006, since the collection of the shortfall associated with the Sub 889 Settlement Agreement will not begin until October 1, 2007.
PEC witness Barkley and Public Staff witness Maness each used a different methodology to calculate their recommended interest amounts. The methodology used by Public Staff witness Maness is set forth in Maness Exhibit I, Schedule 2. The methodology used by PEC witness Barkley is set forth in Barkley Rebuttal Exhibit 2.
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
Public Staff witness Maness testified that his method of calculating interest consisted of comparing two series of cash flows: ( 1) the incurrence and recovery of fuel costs pursuant to the Sub 868 and Sub 889 Settlement Agreements and ( 2) the incurrence and recovery of fuel costs that would have occurred in the absence of the Settlement Agreements. He stated that, by basing the interest calculation on the difference between cash flows experienced pursuant to the Agreements and those that would have been experienced had the Settlement Agreements not been approved, he had captured the impact of the Settlement Agreements on the Company’s cash flows.
According to witness Maness, both he and the Company increased the principal amount on which interest is based from zero to approximately $ 60 million for the first six months covered by the Sub 868 Settlement Agreement ( October 2005 through March 2006), which reflected the difference between the net cash flow that actually occurred during that period as a result of the Settlement Agreement and the net cash flow that would have occurred in the absence of the Settlement Agreement. However, for the first six months of the period during which the under- recovery resulting from the Sub 868 Settlement Agreement began to be collected through the EMF approved in Sub 889 ( October 2006 through March 2007), he reduced the principal amount by approximately $ 27 million ( about six months’ worth of the initial principal buildup of $ 60 million) for purposes of the interest calculation, while the Company reduced the principal amount by approximately $ 12 million. Witness Maness explained that he used the same approach in calculating the buildup of the principal during the collection period as he did in calculating the reduction of the principal during the true- up period, i. e., a comparison of cash flows with and without the Agreement. On the other hand, witness Maness testified that the Company departed from this approach in the second part of its calculation and, instead of comparing cash flows with and without the Settlement Agreement, reduced the $ 60 million principal by only a pro rata portion of the cash flows that occurred with the Settlement Agreement.
Witness Maness stated that his method is preferable to that used by the Company for several reasons, including the fact that his recommended calculation was based on a consistent, direct examination of the two alternative series of cash flows, and it captured the actual differences in those cash flows for purposes of the calculation of interest, while the Company’s method essentially switched from using the differences in the cash flows under each scenario to using the cash flows related only to the with- Settlement Agreement scenario. He stated that the Company’s approach departed from measurement of the actual timing of cash flows that have occurred due to the Agreements, and could not provide an accurate calculation of interest.
PEC witness Barkley testified in rebuttal that under- recoveries and interest are recovered through EMFs established by Commission Rule R8- 55( c)( 2). He further testified that the Public Staff’s attempt to “ link the monthly collection of amounts through an EMF to the time period in which the under- recovery arose is not supported by Rule R8- 55 or the Commission’s normal operating procedures for electric utility fuel reviews.” According to witness Barkley, witness Maness assumed that the EMF approved in Sub 889 would result in PEC recovering $ 60 million of the $ 140 million difference between the revenues that would have been collected under the 2.156¢/ kWh fuel factor and the revenues that were actually collected under the 1.775¢/ kWh factor, witness Maness’ “ theory” being that the difference between the fuel factors applied to 24
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
sales from October 1, 2005, through March 31, 2006, is $ 60 million. Witness Barkley stated that this is not correct because actual under- recoveries fluctuate monthly and the portion of the Sub 889 EMF associated with the Sub 868 under- recoveries does not require a “ hypothetical” calculation. Rather, witness Barkley believed that the amount of the Sub 868 under- recovery collected through the Sub 889 EMF should be taken directly from Barkley Rebuttal Exhibit No. 1 ( which is itself derived from Barkley Exhibit No. 6 in Sub 889), which shows an under- recovery of fuel costs related to Sub 868 during the period October 1, 2005, through March 31, 2006, of approximately $ 26 million. Witness Barkley stated that Barkley Exhibit I makes it clear that “ only $ 26 million of the $ 178 million being recovered in the Sub 889 EMF pertains to Sub 868.”
Witness Barkley also presented a table to compare the positions of PEC and the Public Staff regarding the amount of the Sub 889 EMF associated with the Sub 868 under- recovery to illustrate why, in his view, PEC has correctly calculated interest. According to witness Barkley, this table shows that the difference between the PEC and Public Staff positions ($ 34 million) is the result of subtracting the $ 26 million supported by Barkley Rebuttal Exhibit No. 1 from the $ 60 million calculated by witness Maness. Witness Barkley stated that, since the $ 178 million undercollection approved by the Commission for the EMF approved in Sub 889 remains the same under the two positions, it is logical to assume that the $ 34 million undercollection added to the Sub 868 amount by witness Maness would be deducted from the Sub 851 amount, and maintained that it is inappropriate to adjust that $ 139 million amount downward since it was approved in Sub 889 as shown on Barkley Rebuttal Exhibit 1. Witness Barkley then stated that witness Maness’ adjustment, which he called a “ hypothetical reconfiguration of the EMF,” has the effect of accelerating the repayment of PEC’s under- recovery in Sub 868 and represents the transfer of $ 34 million collected in a non- interest bearing docket ( Sub 851) to reduce an obligation owed to PEC in an interest bearing docket ( Sub 868).
In considering this issue, the Commission notes at the outset that the Settlement Agreements were entered and submitted for approval by both PEC and the Public Staff in Docket Nos. E- 2, Sub 868 and Sub 889. Having entered and submitted Settlement Agreements, these parties now disagree as to how the interest provisions of those Settlement Agreements should be implemented. The Commission is now placed in the position of deciding this issue, which ultimately depends upon the appropriate construction to be placed upon the relevant language in the Sub 868 Settlement Agreement as approved by the Commission. Although the Commission very much appreciates PEC’s decision to mitigate the impact of recent increases in fuel costs upon customers through the mechanisms incorporated into these Settlement Agreements, the issue which the Commission must confront in this proceeding is the manner in which the relevant provisions of the Sub 868 Settlement Agreement should be construed.
The Commission has carefully considered the testimony and exhibit of Public Staff witness Maness and the rebuttal testimony and exhibits of Company witness Barkley in its evaluation of this complex issue. After carefully examining the testimony of the two witnesses, it is clear that their calculations attempt to make two different determinations. On the one hand, the calculation presented by Company witness Barkley attempts to measure the difference between fuel- related revenues and fuel expenses during the relevant recovery period. On the other hand, the calculation presented by Public Staff witness Maness attempts to determine the
25
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
difference in fuel- related revenues that would have been recouped had the Commission adjusted the base fuel factor by 0.499¢/ kWh instead of by the 0.880¢/ kWh figure that the record would have supported in the absence of the Sub 868 Settlement Agreement. In other words, the Commission concludes that both the calculation sponsored by PEC witness Barkley and Public Staff witness Maness simply attempt to measure different things. As a result, the ultimate issue before the Commission in this proceeding is whether, under the Sub 868 Settlement Agreement as approved in the Commission’s Order in that proceeding, interest should be calculated based on a principal amount consisting of the total fuel cost under- recovery that resulted from the Commission’s decision in that proceeding or the difference between the fuel adjustment that would have been approved in the absence of the Sub 868 Settlement Agreement and the fuel factor adjustment that resulted from approval of that Settlement Agreement.
The appropriate manner in which to resolve this issue requires a determination of which proposed interest calculation methodology is more consistent with the language of the Sub 868 Settlement Agreement. Paragraph No. 3 of this Settlement Agreement is the pertinent provision. It reads as follows:
PEC shall be allowed to charge and collect interest at the rate of 6%, compounded annually, on under recovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, as a result of having adjusted the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding gross receipts tax, as proposed in its Application, until all such costs have been recovered.
The appropriate reading of this provision is that the “ under recovery of fuel costs” on which interest is to be calculated is the under- recovery specifically caused by the 0.381¢/ kWh difference between ( 1) the base fuel factor increment that was agreed upon in the Settlement Agreement and ultimately approved by the Commission ( 0.499¢/ kWh) and ( 2) the base fuel factor increment that would have been approved by the Commission in the absence of the Settlement Agreement ( 0.880¢/ kWh). The Commission reaches this conclusion based on the literal language of the relevant provision of the Sub 868 Settlement Agreement, which indicates that the amount upon which the interest calculation should be based is the under- recovery that “ results” from the decision to adjust PEC’s base fuel factor “ by 0.499 cents per kWh instead of 0.880 cents per kWh . . . .” In other words, the under- recovery that the relevant Settlement Agreement provision addresses is caused by a difference in fuel revenues, i. e., the difference between revenues resulting from charging one fuel factor ( the one approved pursuant to the Settlement) instead of another ( the one that would have been approved absent the Settlement). It is not the same under- recovery as that measured by the difference between fuel revenues and fuel costs for the purpose of calculating the EMF pursuant to Commission Rule R8- 55( c)( 2). Adoption of a reading that treats the relevant under- recovery as that measured by the difference between fuel- related revenues and fuel costs would also make the reference to a 0.880¢/ kWh fuel adjustment contained in the relevant provision of the Sub 868 Settlement Agreement superfluous, since that figure would have no impact on the interest calculation in the event that the Commission were to determine that the interest calculation should be based on the difference between fuel- related revenues and fuel costs.
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ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
The Commission’s interpretation of the interest provisions of the Sub 868 Settlement Agreement is also consistent with the provisions of the Commission’s decision in Docket No. E- 2, Sub 889. In that proceeding, the Settlement Agreement approved by the Commission provided, in pertinent part, that:
PEC shall be allowed to charge and collect 6% interest on an amount equal to the under- recovery resulting from PEC agreeing to a total fuel factor of 2.550 cents per kWh in the 2006 case rather than a total factor of 2.856 cents per kWh ( exclusive of gross receipts tax) until all such costs have been recovered.
In its Order approving the Sub 889 Settlement Agreement, the Commission stated that this language allowed PEC “ to accrue 6% interest on an amount equal to the difference between 2.550¢/ kWh and 2.856 ¢/ kWh applied to service rendered between October 1, 2006 and September 30, 2007 . . . .“ As a result, the Commission’s language with respect to the interest issue in its Order in Docket No. E- 2, Sub 889 focuses on the difference between the fuel- related revenues that PEC actually received and the fuel- related revenues that PEC would have received had the Commission established a fuel factor at the level supported by the record evidence instead of approving the Settlement Agreement. It is unlikely that the Commission would have intended to approve different methods for calculating allowable interest under the Sub 868 and Sub 889 Settlement Agreements. Thus, the construction of the Sub 889 Settlement Agreement adopted in the Commission’s Order in Docket No. E- 2, Sub 889, while not conclusive, provides strong support for our conclusion that the approach on which the Public Staff’s calculation of the appropriate interest amount is allegedly based is more consistent with the Sub 868 Settlement Agreement than that proposed by PEC.
Furthermore, the construction of the Sub 868 Settlement Agreement adopted by the Commission in this proceeding is fully consistent with the underlying justification for allowing the accumulation of interest on a part of the Sub 868 under- recovery. The Commission’s Order in Docket No. E- 2, Sub 868 approved the accrual of interest “ because PEC is foregoing revenues that it is otherwise entitled to collect in rates during the upcoming year” and because taking that action “ is necessary . . . in order to make PEC whole.” In other words, the interest provisions of the Sub 868 Settlement Agreement were intended to put PEC in the same position that it would have occupied had the fuel adjustment approved in that proceeding been established in accordance with the record evidence.
According to Commission Rule R8- 55, interest is not generally allowed to be accumulated on fuel cost under- recoveries. As a result, had the fuel adjustment approved for PEC in Docket No. E- 2, Sub 868 been set at 0.880¢/ kWh rather than 0.499 ¢/ kWh, the Company would not have been allowed to accumulate interest on the amount of any resulting under- recovery. In this instance, however, PEC agreed to a smaller fuel adjustment than was supported by the record evidence, a result which would inevitably produce a larger under- recovery than would have existed had the Company’s level of fuel expense been set at the higher level. Allowing interest on the amount of the additional or incremental under- recovery resulting from the use of a 0.499¢/ kWh fuel adjustment as compared to a 0.880¢/ kWh fuel adjustment places PEC in the same position it would have occupied had the fuel component of its rates been 27
ELECTRIC – ADJUSTMENT OF RATES/ CHARGES
established at a level consistent with that supported by the record evidence ( assuming that the stipulated interest rate is appropriate, an issue about which there was no apparent disagreement among the parties). Computing interest on the basis of the difference between the amount of fuel- related revenues and fuel costs resulting from the fuel adjustment ultimately approved by the Commission does not produce a similarly consistent result. Thus, construing the Sub 868 Settlement Agreement in the manner determined to be appropriate by the Commission is consistent with the entire reason that PEC was allowed to recover interest under that agreement.
As a result, because the calculation of the principal amount upon which the interest resulting from the Sub 868 Settlement Agreement is appropriately based on differences in fuel revenues caused by the differences in base fuel factors resulting from the Settlement Agreement, the Commission concludes that it is necessary to compare the fuel revenues generated by the fuel adjustment that was actually approved in Docket No. E- 2, Sub 868 and the fuel factor that would have been approved if the Settlement had not occurred. Put another way, under the appropriate construction of the Sub 868 Settlement Agreement, it is the difference between the use of these two factors that determines the impact of the Settlement on the interest calculation. As a result, the Commission must now turn to the calculations proposed by the Company and the Public Staff to determine which one, if either, is consistent with the method that the Commission has determined to be appropriate. In view of the fact that the calculation proposed by the Company is not based on the construction of the Settlement Agreement that the Commission has found to be appropriate, the Commission cannot base its decision with respect to the interest calculation issue on the approach recommended by PEC witness Barkley. On the other hand, after careful review, the Commission concludes that the calculation recommended by Public Staff witness Maness follows the appropriate path. This can be determined not only through a review of witness Maness’ testimony, but also through a close review of his calculation, which is set forth on Maness Exhibit I, Schedule 2.
An examination of Maness Exhibit I, Schedule 2, reveals that it is divided into three sections. The first section, page 1, is entitled “ With Settlement.” Through examination of the line and row headings, as well as the footnotes to the Schedule, it is clear that this section calculates the net cash flow related to base fuel factor revenues, fuel costs, and the EMF for the period October 2005 through March 2007. The second section, page 2, is entitled “ Without Settlement.” This section calculates the net cash flow assuming that the Sub 868 and 889 base fuel factors, as well as the EMF, were set at the amounts that would have been approved by the Commission absent the Settlement Agreements in both those cases. The third section, page 3, entitled “ Interest Calculation,” takes the differences between the monthly cash flows calculated in sections one and two and calculates interest on them. The Commission notes that the only external input that differs between sections one and two is the fuel revenue factor; thus, the difference between the cash flow results in each of the two sections is driven entirely by differences in fuel revenue, not fuel cost. The Commission also notes that the base fuel revenue factors used in each section are, respectively, the factors that were approved as a result of the Settlement Agreements and those that would have been approved absent the Settlements.
The Commission has carefully followed how witness Maness calculated the EMFs used in his Exhibit I, Schedule 2 ��� the EMF assuming the existence of the Sub 868 Settlement, set forth on page 1, column ( g), and the EMF assuming no Sub 868 Settlement, set forth on page 2,
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column ( o). Footnote 6 on page 1 and footnote 11 on page 2 indicate that in both cases the EMF was determined by dividing the undercollection in each section as of March 2006, the end of the Sub 889 test year, by estimated North Carolina retail MWh sales, just as was done in the Sub 889 proceeding. Thus, it is clear that the EMFs were calculated using a net fuel cost undercollection that was determined in accordance with the assumption underlying the respective sections, i. e., with and without the Settlement. Moreover, as described previously, the only factor driving the differences in the Sub 868- related undercollections in each section, and thus the calculated EMFs, was the difference in the fuel revenue factor caused by the Sub 868 Settlement. Finally, as witness Maness testified, and as a matter of mathematics, the Settlement- related under- recovery built up during the initial collection period will be exactly offset by the Settlement- related true- up measured by the difference between the alternative EMFs ( subject to differences in the amount of kWh sales billed during the period each rate is in effect). Thus, by the date the Rule R8- 55( c)( 2) fuel cost undercollection is trued- up through twelve months of billing of an approved EMF, the Settlement- related under- recovery will also be trued- up. In the case of the Sub 868 Settlement- related under- recovery, that date will be September 30, 2007. Thus, under the approach advocated by Public Staff witness Maness, the entire Settlement- related under- recovery will be recouped from ratepayers over the relevant collection period.
The interest calculation set forth on Maness Exhibit I, Schedule 2, thus fulfills the two interrelated requirements that the Commission has concluded must be met for the interest calculation to appropriately measure the impact of the Settlements. First, it calculates interest on the basis of the difference between the cash flows that occurred due to the Settlements and those that would have occurred absent the Settlements. Second, the Settlement- related under- recovery is determined solely by the differences in fuel revenue occurring due to the Settlements. In fact, the mathematics of witness Maness’ schedule show that if the fuel cost ( expense) factors were to be removed from the schedule entirely, the resulting interest amount of $ 8,217,000 would not change. For these reasons, the Commission concludes that the methodology used by witness Maness is consistent with the Commission’s construction of the Sub 868 Settlement Agreement and that his recommended interest amount of $ 8,217,000 is appropriate for use in this proceeding.
Witness Barkley’s assertion that witness Maness’ method takes a portion of the Sub 889 EMF calculation related to Docket No. E- 2, Sub 851 and reassigns it to the Sub 868- related portion of that calculation does not persuade the Commission to adopt the Company’s recommended approach to determining the appropriate amount of interest to include under the Sub 868 Settlement Agreement. As witness Maness testified, and as Maness Exhibit I, Schedule 2, page 2, indicates, what witness Maness did was to recalculate the Sub 889 EMF as if the Sub 868 Settlement Agreement had not taken place. The result of such a calculation is that the Sub 868- related portion of the overall Sub 889 EMF calculation would have changed from an under- recovery of $ 26 million to an over- recovery of $ 34 million, a net change of $ 60 million. The Commission concludes that there was no “ taking” from Sub 851. As witness Maness stated, his calculation did not “ involve the Sub 851 numbers at all.”
In summary, based on the evidence presented in this case, and the records in Subs 868 and 889, the Commission finds that the Public Staff’s methodology for calculating interest reflects an appropriate reading of the Sub 868 Settlement Agreement, uses actual data to
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determine PEC’s net cash flows and captures the differences in timing of fuel cost recovery with and without the Settlement Agreement, and is applied consistently throughout the period October 2005 through March 2007. The Public Staff’s methodology also accomplishes exactly the purpose for which these types of interest accruals are designed: it puts the Company in the same financial position that it would have been in had the Settlement Agreement not been proposed and approved. The Commission, therefore, finds and concludes that it is appropriate to increase this fuel expense under- recovery by $ 8,217,000 to reflect interest through March 31, 2007, related to the Settlement Agreements approved in Docket No. E- 2, Subs 868 and 889.
Thus, the Commission finds and concludes that PEC’s under- recovery of prudently incurred fuel costs appropriate for recovery in this proceeding is $ 144,188,836, and the corresponding EMF to which PEC is entitled is 0.387 ¢/ kWh, exclusive of gross receipts tax. Pursuant to Ordering Paragraph No. 3 of the Commission’s September 25, 2006 Order in Docket No. E- 2, Sub 889, the Commission therefore finds that the base fuel factor should be 2.288¢/ kWh.
At this point herein, the Commission notes that CUCA filed a brief and motion for reconsideration pursuant to G. S. 62- 80, in both Docket No. E- 2, Sub 889 and in this Docket, on September 4, 2007. PEC filed a response to CUCA’s motion on September 6, 2007.
The Commission has issued a separate order in Docket No. E- 2, Sub 889 addressing CUCA’s motion for reconsideration of the Commission Order dated September 25, 2006, in Docket No. E- 2, Sub 889. However, in its filing, CUCA also includes the following alternative requests for relief:
Even if the Commission declines to reconsider the 2006 Order, the Commission should either: ( i) clarify the terms of the Settlement Agreement to specify that PEC shall not accrue interest upon the difference between the fuel factor computed in accordance with Settlement Agreement to go into effect October 1, 2007, 2.287 cents per kWh, and the fuel factor that PEC computed in accordance with its past procedures and set forth in Barkley Exhibit 5A, 2.358 cents per kWh; or ( ii) conclude that the 2.287 cents per kWh is the reasonable fuel factor independent of the Settlement Agreement and in contravention of Barkley Exhibit 5A, which would prevent the accrual of interest even if such accrual is permitted by the Settlement Agreement because there would be no differential between the reasonable rate and the rate to be implemented in accordance with the Settlement Agreement.
In its response, PEC states that CUCA did not present any witness to address the issues raised in its brief, but rather simply asked a few questions on cross- examination related to these matters. PEC argues that simply asking a witness a question on cross- examination does not properly raise an issue for resolution by the Commission and that the arguments in CUCA’s brief are not ripe for consideration.
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The Commission rejects CUCA’s alternative requests. The request by CUCA to clarify the interest provision of the Settlement Agreement is not ripe for decision, but not for the reason argued by PEC. This request is premature because PEC is not attempting to recover in rates any interest on the difference between the 2.287¢/ kWh factor and the 2.358¢/ kWh factor at this time. Such a request may be an issue in PEC’s next fuel case, but no such request is before the Commission now. The request by CUCA to approve the 2.287¢/ kWh base fuel factor as the reasonable fuel factor, independent of the Settlement Agreement, is contrary to the evidence in this case that PEC would be entitled to a base fuel factor equal to 2.358¢/ kWh, absent the Settlement Agreement.
IT IS, THEREFORE, ORDERED as follows:
1. That, effective for service rendered on and after October 1, 2007, PEC shall adjust the base fuel component in its North Carolina retail rates by an increment of 1.012¢/ kWh ( 1.046¢/ kWh including gross receipts tax) above the base fuel component approved in Docket No. E- 2, Sub 537, and said increment shall remain in effect until changed by a subsequent order of the Commission in a general rate case or fuel case;
2. That PEC shall establish an EMF Rider as described herein to reflect an increment of 0.387¢/ kWh ( 0.400¢/ kWh including gross receipts tax) for retail rate schedules and applicable riders, and this Rider is to remain in effect for a 12- month period beginning October 1, 2007, and expiring on September 30, 2008;
3. That PEC shall file appropriate rate schedules and riders with the Commission in order to implement the fuel charge adjustment approved herein not later than seven ( 7) working days from the date of this Order; and
4. That PEC shall notify its North Carolina retail customers of the fuel charge adjustments approved herein by including the customer notice attached as Appendix A as a bill message to be included on bills rendered during the Company’s next normal billing cycle following the effective date of this Order.
ISSUED BY ORDER OF THE COMMISSION.
This the 25th day of September 2007.
NORTH CAROLINA UTILITIES COMMISSION
Gail L. Mount, Deputy Clerk
Ah092507.05
Chairman Edward S. Finley, Jr. concurs in part and dissents in part.
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APPENDIX A
PEC BILL MESSAGE
The North Carolina Utilities Commission issued an Order on September 24, 2007, after public hearings and review, approving a fuel charge increase of approximately $ 48 million in the rates and charges paid by North Carolina retail customers of Progress Energy Carolinas, Inc. The rate increase will be effective for service rendered on and after October 1, 2007, and will result in a monthly rate increase of $ 1.30 for a typical customer using 1,000 kWh per month.
DOCKET NO. E- 2, SUB 903
CHAIRMAN EDWARD S. FINLEY, JR., dissenting in part:
In its September 26, 2005 Order in Docket No. E- 2, Sub 868, the Commission approved a base fuel factor of 1.775 cents/ kWh for PEC for recovery of fuel costs during the upcoming twelve- month period, October 1, 2005 through September 30, 2006. The undisputed evidence before the Commission was that PEC would have been justified in charging a base fuel factor of 2.156 cents/ kWh as authorized by G. S. 62- 133.2 and NCUC Rule R8- 55. PEC, however, had entered into a settlement agreement with intervenors in the case under which PEC agreed voluntarily to forego the revenues to which it otherwise would have been entitled had it employed the 2.156 cents/ kWh. The effect of the Settlement Agreement and the Commission’s approval of it was that PEC forewent millions of dollars in recovery of fuel costs within the upcoming twelve months and that its ratepayers enjoyed a deferral of their responsibility fully to reimburse PEC for those costs until as late as September 30, 2008. The purpose of the settlement was to spare ratepayers the financial burden of a rather precipitous increase in their rates. “[ The settlement agreement] significantly mitigates the near term impact to PEC’s customers of increasing cost of coal, natural gas, and rail transportation, and the Commission believes adopting the Agreement is in the public interest.”
The Commission, in recognition of PEC’s willingness to forego recovery of the fuel costs within the upcoming twelve month period, in the September 26, 2005 Order, authorized PEC to receive interest on the fuel cost underrecovery.
As the Commission stated:
In recognition of the fact that a base fuel factor of 1.775 cents/ kWh will, in all probability, cause PEC to significantly underrecover its fuel costs during the time period that the rates will be in effect, the Agreement provides that PEC shall be allowed to charge and collect interest at a rate of 6%, compounded annually on any underrecovery of fuel costs that occurs during the time period October 1, 2005, through September 30, 2006, that results from increasing the base fuel factor by 0.499 cents per kWh instead of 0.880 cents per kWh excluding
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gross receipts tax, as proposed in its Application, until all such costs have been recovered. 1
PEC, in accordance with the Commission’s Order, charged only the 1.775 cents/ kWh each month on retail MWh sales for the twelve- month period October 2005 through September 2006.
In PEC’s 2006 fuel docket, E- 2, Sub 889, the Commission approved an EMF of 0.490 cents/ kWh. The EMF is a mechanism through which PEC collects the fuel cost underrecoveries experienced in the historical test year. G. S. 62- 133.2( d) requires the Commission to incorporate in its fuel cost determination “ the experienced over- recovery or under- recovery of reasonable fuel expenses prudently incurred during the test period. . . . and the over- recovery or under- recovery portion of the increment or decrement shall be reflected in rates for 12 months. . . .” NCUC Rule R8- 55( c)( 2) provides that the “ EMF rider will reflect the difference between reasonable and prudently incurred fuel cost and fuel related revenues that were actually realized during the test period under the fuel cost component of rates then in effect.” Thus, the Sub 889 EMF was established to allow reimbursement resulting from PEC’s assessing a 1.775 cents/ kWh base fuel factor instead of 2.156 cents/ kWh for the twelve month period ended September 30, 2006, as well as other test year underrecovered fuel costs. The 0.490 cents/ kWh EMF approved in Sub 889 went into effect October 1, 2006. The historical test period upon which the Sub 889 rates were based was the twelve- month period April 1, 2005 through March 31, 2006. Consequently, PEC assessed the 1.775 cent/ kWh only during the six month period October 2005 through March 2006 of the Sub 889 test period. The undisputed evidence in this docket is that PEC’s actual fuel expense during the October 2005 through March 2006 six months period exceeded PEC’s actual revenues arising from its assessing the 1.775 cents/ kWh by $ 26 million. This underrecovery was set forth in the evidence in Sub 889 in Barkley Ex. No. 6 lines 8- 13. This was the evidence the Commission had before it in Sub 889 when it established the 0.490 cents/ kWh EMF to enable PEC to recover past unrecovered fuel expense in the upcoming twelve- month period, October 2006 through September 2007.
The question before the Commission in this docket for purposes of determining interest is how much of the October 2005 through March 2006 fuel cost underrecovery arising because PEC assessed 1.775 cents/ kWh instead of 2.156 cents/ kWh was reimbursed between October 1, 2006 through September 30, 2007 through PEC’s assessment of the Sub 889 0.490 cents/ kWh EMF. PEC argues that PEC’s fuel expense during the six months exceeded PEC’s fuel recovery revenues by $ 26 million, so the 0.490 EMF cents/ kWh effectively only reduced the underrecovery by $ 26 million. The Public Staff argues that this $ 26 million reimbursed through the Sub 889 EMF should be increased by $ 34 million ( to $ 60 million) to recognize the difference in cash flows during the six month period from those PEC actually experienced by assessing the 1.775 cents/ kWh and those PEC would have experienced if no settlement had been reached and PEC had assessed the 2.156 cents/ kWh. The Public Staff’s method reduced the underrecovery more, thus resulting in $ 190,000 less in interest expense in this case. The Public Staff’s method will result in PEC’s receiving millions of dollars less in interest expense in succeeding cases. Under the Public Staff approach PEC had not only an actual $ 26 million underrecovery of fuel
1 The base fuel factor the Commission approved for PEC in PEC’s 2004 fuel docket, E- 2, Sub 784, was 1.276 cents/ kWh. Increasing 1.276 cents/ kWh by 0.499 cents/ kWh equals 1.775 cents/ kWh. Had the 1.276 cents/ kWh been increased by 0.880 cents/ kWh, the factor would have been 2.156 cents/ kWh.
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costs, but also had a $ 34 million loss of foregone revenues during the six months because PEC charged 1.775 cents/ kWh instead of 2.156 cents/ kWh.
No Settlement Agreement provision or provisions in any Commission order expressly addresses the formula that PEC should use to calculate the appropriate interest. Nevertheless, the Commission’s September 26, 2005 Order authorizes interest on “ underrecovery of fuel costs.” The Order makes no reference to foregone revenue cash flows. In addition, G. S. 62- 133.2( d) dictates that the EMF should true up “ experienced underrecovery” of fuel expense “ incurred during the test period.” Rule R8- 55( c)( 2) defines the EMF as the difference between fuel cost and fuel related revenues actually realized during the test period. In spite of this, the proposal for calculating interest advocated by the Public Staff adds to the actual October 2005 through March 2006 underrecovery between fuel revenues received and fuel expenses incurred reimbursed through the EMF “ cash flows” that PEC “ would have” received “ if” PEC had charged 2.156/ kWh. In my view this flies in the face of the letter and the intent of the Settlement Agreement authorizing interest, the Commission’s Order approving it, and the express terms of G. S. 62- 133.2( d) and NCUC Rule R8- 55( c)( 2). As I read the Settlement Agreement and the Commission’s order, PEC is to receive interest on its underrecovery of fuel costs during the period the 1.775 cents/ kWh factor was in effect. The effect of the settlement was that PEC forewent revenues for the recovery of fuel costs during this period that the evidence justified, so that ratepayers would have lower rates. In recognition of this concession, PEC was to receive interest on the “ fuel cost underrecovery” experienced while the 1.775 cents/ kWh was in effect. I find no suggestion in the Settlement Agreement or any Commission order that the interest calculated during the fuel cost underrecovery period is to be offset by any hypothetical foregone revenue cash flows. 1 Indeed, my reading of the Order suggests just the opposite. This is especially so because the statute and rule are written in terms of “ underrecovery of fuel expense” and the “ difference between incurred fuel costs and fuel related revenues actually realized during the test period.”
Calculating interest in the manner advocated by the Public Staff and adopted by the majority two years after the fact through reliance on hypothetical foregone revenue cash flows inequitably deprives PEC, the party to the settlement that relinquished its rights, in favor of ratepayers, the party that benefited by the settlement’s fundamental terms. What the Commission authorized in the September 26, 2005 Order by approving interest on unrecovered fuel costs until “ all such costs have been recovered,” the Commission is significantly taking back by attributing to PEC fuel cost recovery that the 0.490 cents/ kWh EMF simply did not reimburse. If interest was to be calculated by attributing to PEC foregone revenue cash flows instead of actual fuel cost recovery in contradiction of what the statue and rule require, this should have been spelled out two years ago. PEC obviously has been deprived of the bargain it legitimately felt it had reached, and will not receive interest on the actual fuel costs
1Q. I may have misunderstood both of you which is why I am looking for some help. Why do you feel that Mr. Barkley’s description of your calculation involved a misapprehension of some nature?
A. ( Public Staff witness Maness) First of all, he speaks several times to my calculation as being a hypothetical calculation. I agree that one of the situations I used, the series of cash flows that would have occurred if the settlement had not been in effect is a hypothetical situation, but there is nothing hypothetical about the calculation. . . .
Tr. p. 95. 34
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underrecovery it experienced while the 1.775 cents/ kWh factor was in effect. This is not the type of evenhanded regulatory treatment parties regulated by the Commission should receive.
The Public Staff, and the majority, which adopts the Public Staff position, places great reliance on the phrase “ as a result of having adjusted the base fuel factor by 0.499 cents/ kWh instead of 0.880 cents/ kWh.” This reliance is misplaced and unpersuasive. The phrase helps address the “ what” and the “ why” questions but not the “ how” question, which is the question at issue. The phrase addresses the fact that interest will be paid on the under- recovery of fuel costs ( the what) because the Commission approves a base fuel factor of 1.775 cents/ kWh instead of 2.156 cents/ kWh ( the why), but says nothing about the formula to be used in calculating the amount of interest ( the how).
The operative language from the September 26, 2005 order, after all, comes without significant modification from a joint proposed order submitted by PEC and the Public Staff on September 6, 2005. PEC and the Public Staff, the authors of the language, have come to no agreement on its intended meaning. For the majority to conclude two years later that the Commission, that authored nothing, intended for this language to mean that interest should be calculated through reliance on hypothetical cash flows simply defies credibility.
More importantly, the best indication of intent is the interpretation the parties and the Commission followed in Docket No. E- 2, Sub 889 in 2006. When the parties agreed upon and the Commission authorized the 0.490 cents/ kWh EMF in that docket, the EMF was established through reliance on the undisputed evidence in that case, Barkley Ex. No. 6, lines 8- 13, to permit reimbursement of only $ 26 million of the underrecovery from assessing the 1.775 cents/ kWh during the Sub 889 test year, not $ 60 million. The 0.490 cents/ kWh has as its essential component, for purposes of the dispute in this case, a factor to reimburse only $ 26 million. Not only is it unfair and in contradiction of the ruling made in Sub 889 to in today’s order modify that factor, to do so violates G. S. 62- 133.2 requirements that the EMF reimburse only experienced underrecovery during the historical test year.
G. S. 62- 133.2 is structured so that the EMF only allows PEC to obtain reimbursement for fuel cost underrecovery experienced in the historical twelve- month test period. The statute prohibits PEC from increasing the EMF to permit reimbursement of fuel cost underrecovery PEC experiences before the beginning or after the close of the historical test period. Yet the method for calculation of interest advanced by the Public Staff does just that— the method attributes to PEC fuel costs reimbursement that actually occurred before April 1, 2005, or after March 31, 2006.
The justification the Public Staff advances in support of its calculation is that it is theoretically superior to PEC’s. The Public Staff asserts that “ the Company’s method essentially switches from using the differences in cash flows under each scenario to using the cash flow related to the with- agreement scenario. Second, it is clear that due to the overall operation of the fuel clause, specifically the true up provision, the $ 60 million lower cash flow during the initial Sub 868 collection period must be offset by an equally higher cash flow over the course of the Sub 868 true- up period”. In particular Public Staff witness Maness asserts, “ Contrastingly, the Company’s approach reduced the Sub 868- related principal balance during the same period by only approximately $ 12 million ( about six months’ worth of its $ 26 million). Thus, the
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Company reduced the principal balance for that period by an amount that is disproportionately lower than the amount indicated by the relevant cash flows.”
This criticism is invalid and erroneous. PEC determines the Sub 889 test year underrecovery from assessing the 1.775 cents/ kWh to be $ 26 million. PEC determines that the 0.490 Sub 889 EMF reimbursed PEC $ 12 million or six months of the $ 26 million underrecovery during the first six months the Sub 889 rates were in effect. The reason for this is obvious. The 1.775 cents/ kWh was in effect for only six months of the Sub 889 test year. However, the 0.490 cents/ kWh was in effect for the entire twelve months that the Sub 889 rates were in effect. The percentage of the 0.490 cents/ kWh used to reimburse PEC for the underrecovery arising from employment of the 1.775 cents/ kWh remains uniform each month of the period the Sub 889 rates are in effect. Therefore only six months of the $ 26 million, or $ 12 million, is reimbursed in the first six months. The remainder will be reimbursed in months seven through twelve.
The Public Staff’s calculations are subject to the same Public Staff criticism. The Public Staff maintains that Sub 889 test year underrecovery is $ 60 million. Yet the Public Staff asserts that $ 27 million was reimbursed through the first six months of the period rates approved in Sub 889 were in effect. This is approximately the same percentage of reimbursement to underrecovery as the percentage PEC’s numbers produce.
\ s\ Edward S. Finley, Jr.
Chairman Edward S. Finley, Jr.
DOCKET NO. E- 2, SUB 903
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Application of Carolina Power & Light Company d/ b/ a Progress Energy Carolinas, Inc. for Authority to Adjust its Electric Rates Pursuant to G. S. 62- 133.2 and NCUC Rule R8- 55
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ERRATA ORDER
BY THE CHAIRMAN: On September 25, 2007, the Commission issued an Order Approving Fuel Charge Adjustment in this proceeding. Appendix A attached to the Order contains a typographical err